Contractual terms

By Tolley in association with Sarah Bradford

The following Employment Tax guidance note by Tolley in association with Sarah Bradford provides comprehensive and up to date tax information covering:

  • Contractual terms
  • Express terms
  • Implied terms
  • Imposed terms
  • Incorporated terms
  • The term of trust and confidence

Please note that all case references in this guidance note are subscription sensitive.

Although employers and employees have a number of rights given to them by statute, the basic relationship between them continues to be governed by the contents of the contract of employment. The terms of the contract are also important in determining the status of the individual for tax purposes. In almost all cases, a contract of employment will be a contract of service and so payments made under that contract will be employment income taxable under ITEPA 2003. Therefore, it is important to know what the terms of that contract are. Such a determination is complicated by the fact that a contract can be made up of any or all of the following types of terms:

  • express
  • implied
  • imposed
  • incorporated
Express terms

These can be written or spoken and specifically reflect what the parties wanted to happen. It is important to make all express terms, especially those that are significant to either of the parties, as clear, certain and unambiguous as possible. Ambiguous terms can often lead to later disagreement and then potentially to litigation between the parties. A key rule in relation to express terms is that if a term has more than one meaning, the court or tribunal will give it the meaning that least favours the party who drafted it.

An oral contract is as binding as a written contract, but there is obviously greater scope for disagreement about what the parties agreed.

A contract can be effective even if it has not been signed, although the lack of a signature of either one of the parties could potentially lead to disagreement about precisely what was agreed.

The terms can be

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