Where employees are ordinarily resident in the UK and perform employment duties wholly in the UK for a UK employer, an employee will be taxed on the earnings arising from that office or employment.
Earnings are essentially summarised as a payment in return for acting or being an employee and may be defined as any salary, wages or fee, any gratuity or other profit or incidental benefit of any kind obtained by the employee, if it is in monetary value or anything else that constitutes an emolument of employment.
The factors which must be taken into account in determining whether such amounts are earnings include the judgment to decide if there is a direct link to the employment, their monetary value and the time where the remuneration is assessed.
Not all payments made by employers to employees constitute earnings and each case is assessed on its merits by the tax authorities. These include gifts, prizes, compensation, inducements, reasonable expenses, payments from someone other than the employer, payments to a third party, payments made in exceptional circumstances or payments anticipated by an employee.
In addition to earnings paid in the normal course of employment, payments may also be made in the form of a lump sum on the commencement, termination or variation of employment. As before, the nature of such payments will determine whether and how they are taxed.
However, there are specific provisions in relation to redundancy payments, payments in lieu of notice, garden leave, restrictive covenants, outplacement counselling for losing employment and unfair dismissal compensation, including legal costs.
A summary of benefits that are commonly taxed include:
Given the complexity of tax regulations and taxation law, specialist advice should be sought on any individual item of remuneration prior to decisions being taken whether it is taxable or not.