Taxation of cash earnings

By Tolley
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The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Taxation of cash earnings
  • Is the employee subject to UK income tax on their employment income?
  • What is employment income?
  • Taxation of directors and other officeholders

This note sets out the basic principles of employment income and how they apply to earnings. Any type of reward received in relation to an individual’s employment may result in an employment income tax charge.

In addition to understanding what income is to be taxed / subject to NIC, there are also comprehensive rules on the collection of income tax in relation to employment income under the Pay As You Earn (PAYE) withholding regime. For more detail on PAYE, see the Setting up a payroll guidance note and the other notes in the ‘Mechanics of payroll’ sub-topic.

Is the employee subject to UK income tax on their employment income?

Broadly, an employee is subject to income tax in the UK if they are resident in the UK or carrying out employment duties in the UK. Where there are overseas elements to any employment, it is helpful to look at the following legislation which sets out when income is taxed in the UK:

  • if an employee is UK resident, they are liable to UK tax on their worldwide earnings (ITEPA 2003, s 15)
  • if an employee is UK resident, does not meet the three-year non-residence requirement, is non-domiciled and the remittance basis applies (see the Remittance basis ― overview guidance note), any earnings in respect of duties performed wholly overseas for a foreign employer are taxable only if they are remitted (brought in) to the UK (ITEPA 2003, s 22)
  • where an employee is UK resident, does meet the three-year non-residence requirement, is non-domiciled and the remittance basis applies (see the Remittance basis ― overview guidance note), they are liable to UK income tax on their worldwide earnings. However, any earnings in respect of duties performed outside the UK (or overseas

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