UT (Tax & Chancery) UT-2024-000088 - [2025] UKUT 00374 (TCC)

Part 2 Income Tax (Earnings and Pensions) Act 2003 (“ITEPA 2003”) imposes a charge to income tax on “employment income”, which is defined by s.7(2)(a) as including “earnings within Chapter 1 of Part 3”. That definition is set out in s.62:

“Earnings

(1)

This section explains what is meant by “earnings” in the employment income Parts.

(2)

In those Parts “earnings”, in relation to an employment, means –

(a)

any salary, wages or fee,

(b)

any gratuity or other profit or incidental benefit of any kind obtained by the employee if it is money or money's worth, or

(c)

anything else that constitutes an emolument of the employment.

(3)

For the purposes of subsection (2) “money's worth” means something that is –

(a)

of direct monetary value to the employee, or

(b)

capable of being converted into money or something of direct monetary value to the employee.

(4)

Subsection (1) does not affect the operation of statutory provisions that provide for amounts to be treated as earnings (and see section 721(7)).”

Chapter 4 of Part 2 of ITEPA 2003 then deals with the taxable earnings of UK resident employees:

“Taxable earnings

14.

Taxable earnings under this Chapter: introduction

(1)

This Chapter sets out for the purposes of this Part what are taxable earnings from an employment in a tax year in cases where section 15 (earnings for year when employee UK resident) applies to general earnings for a tax year.

(2)

In this Chapter –

(a)

sections 16 and 17 deal with the year for which general earnings are earned, and

(b)

sections 18 and 19 deal with the time when general earnings are received.

(3)

In the employment income Parts any reference to the charging provisions of this Chapter is a reference to section 15.

UK resident employees

15

Earnings for year when employee UK resident

(1)

This section applies to general earnings for a tax year for which the employee is UK resident except that, in the case of a split year, it does not apply to any part of those earnings that is excluded.

(1A) General earnings are “excluded” if they –

(a)

are attributable to the overseas part of the split year, and

(b)

are neither –

(i)

general earnings in respect of duties performed in the United Kingdom,

nor

(ii)

general earnings from overseas Crown employment subject to United Kingdom tax.

(2)

The full amount of any general earnings within subsection (1) which are received in a tax year is an amount of “taxable earnings” from the employment in that year.

(3)

Subsection (2) applies whether or not the employment is held when the earnings are received.

(4)

Any attribution required for the purposes of subsection (1A)(a) is to be done on a just and reasonable basis.

(5)

The following provisions of Chapter 5 of this Part apply for the purposes of subsection (1A)(b) as for the purposes of section 27(2)—

(a)

section 28 (which defines “general earnings from overseas Crownemployment subject to United Kingdom tax”), . . .

(b)

sections 38 to 41 (which contain rules for determining the place of performance of duties of employment), and

(c)section 41ZA (which is about determining the extent to which general earnings are in respect of United Kingdom duties).

(6)

Subject to any provision made in an order under section 28(5) for the purposes of subsection (1A)(b), provisions made in an order under that section for the purposes of section 27(2) apply for the purposes of subsection (1A)(b) too.

Year for which general earnings are earned

16.

Meaning of earnings “for” a tax year

(1)

This section applies for determining whether general earnings are general earnings “for” a particular tax year for the purposes of this Chapter.

(2)

General earnings that are earned in, or otherwise in respect of, a particular period are to be regarded as general earnings for that period.

(3)

If that period consists of the whole or part of a single tax year, the earnings are to be regarded as general earnings “for” that tax year.

(4)

If that period consists of the whole or parts of two or more tax years, the part of the earnings that is to be regarded as general earnings “for” each of those tax years is to be determined on a just and reasonable apportionment.

(5)

This section does not apply to any amount which is required by a provision of Part 3 to be treated as earnings for a particular tax year.

17 Treatment of earnings for year in which employment not held

(1)

This section applies for the purposes of this Chapter in case where general earnings from an employment would otherwise fall to be regarded as general earnings for a tax year in which the employee does not hold the employment.

(2)

If that year falls before the first tax year in which the employment is held, the earnings are to be treated as general earnings for that first tax year.

(3)

If that year falls after the last tax year in which the employment was held, the earnings are to be treated as general earnings for that last tax year.

(4)

This section does not apply in connection with determining the year for which amounts are to be treated as earnings under Chapters 2 to [10] of Part3 (the benefits code).

When general earnings are received

18

Receipt of money earnings

(1)

General earnings consisting of money are to be treated for the purposes of this Chapter as received at the earliest of the following times –

Rule 1

The time when payment is made of or on account of the earnings.

Rule 2

The time when a person becomes entitled to payment of or on account of the earnings…

...

(5)

Where this section applies –

(a)

to a payment on account of general earnings, or

(b)

to sums on account of general earnings,

it so applies for the purpose of determining the time when an amount of general earnings corresponding to the amount of that payment or those sums is to be treated as received for the purposes of this Chapter.”