Employment income

By Tolley

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

  • Employment income
  • General earnings
  • Specific employment income
  • Person liable
  • Calculation of employment income
  • Benefits in kind

Prior to the enactment of ITEPA 2003, employment income was known as ‘Schedule E’. You may hear this term used in practice.

To understand the taxation of employment income, it is important to appreciate how the legislation categorises the income.

Employment income can be subdivided into:

  • general earnings, and
  • specific employment income

ITEPA 2003, s 6(1)

General earnings

‘General earnings’ is essentially payments made to the employee or director as a reward for services rendered. General earnings is itself divided into:

  • earnings, and
  • deemed earnings

ITEPA 2003, s 7(3)


Earnings, in relation to an employment, means:

  • any salary, wages or fee (ie cash remuneration such as salary or bonus)
  • any gratuity or other profit or incidental benefit of any kind obtained by the employee or director if it is money or money’s worth (ie something of direct monetary value or capable of being converted into money or monetary value such as tips (see below) or cash vouchers), or
  • anything else that constitutes an emolument of the employment (eg round sum allowances, see below)

ITEPA 2003, s 62(2), (3)

The case law interpretation of earnings is discussed further in EIM00610.

Any amount that is earnings for the purposes of ITEPA 2003, s 62 should have income tax and Class 1 national insurance withheld via PAYE, whether or not these amounts are paid via the payroll. However, there may be special rules in relation to tips and gratuities, see the Tips

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