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Employment Income: Scope |
3 |
However, a payment from an employer to an employee for some other reason than the employment will escape tax. Conversely, and less obviously, a payment from a non-employer may be taxable—if it is for services rendered under a contract of employment.4 The test in these cases is one of causation; an emolument is a payment in return for acting as or being an employee.5 A running issue is the extent to which these are matters of form as opposed to substance, ie the question are to be answered by reference to what the parties said in their arrangements.6 Income taxable under as employment income is earned income.7 |
13A.1.1 Scope |
As already seen, the term ‘earnings’ is defined by section 62(2) to include not only gratuities and incidental benefits but also ‘emoluments’ a term defined under the previous legislation as including but also ‘all salaries, fees, wages, perquisites and profits whatsoever’.8 This was enough to tax many benefits in kind. However, as section 62 makes clear a payment in kind is taxable as earnings only if, in addition to being an emolument, it is convertible into money. For this reason a wider test (now to be found in part 3 chapter 10, previously TA 1988, section 154) applies for many benefits in kind paid to employees earning £8,500 a year and to directors. Yet further specific rules apply to tax certain non-convertible benefits in kind whether or not this earnings threshold is not reached. Unfortunately, these benefit in kind rules are all lumped together in chapters 3–11 of part 3 to make the ‘benefits code’. Great care is needed to know when the threshold applies and when it does not. Another regrettable feature of the 2003 Act is that certain limits on the application of these individual rules are treated as exemptions from liability and so are to be found not in part 3 but, many pages away, in part 4. |