Employment Tax

Taxation of cash earnings

Produced by Tolley
  • 13 Apr 2022 09:41

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

  • Taxation of cash earnings
  • What is employment income?
  • General earnings
  • Specific employment income
  • Is the employee subject to UK income tax on their employment income?
  • In which year is income taxed?
  • Tax rates and thresholds
  • 2022/23
  • 2021/22

Taxation of cash earnings

This note sets out the basic definitions of what is employment income for income tax and PAYE and how this is applied by the legislation. This legislation applies to employees and ‘officeholders’ in their earnings from that employment or office. Wherever the term ‘employee’ is used in regards to PAYE, this will include officeholders unless specifically stated otherwise. This term isn’t simple, but broadly an ‘office’ is ‘any position which has an existence independent of the person who holds it’. It applies clearly to statutory directorships, and other cases should be considered on a case by case basis where it is unclear. See Simon’s Taxes E4.201–E4.204 for more.

The NIC position is addressed in the Categorisation of earners for NIC purposes guidance note. In addition to understanding what income is subject to taxand 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.

What is employment income?

The charge to tax is on all forms of employment income, with different types being subject to different charging provisions. There are two categories of employment income: general earnings and specific employment income. See also Simon’s Taxes E4.1 and EIM00510.

General earnings

“General earnings” consist of earnings falling within ITEPA 2003, s 62 (referred to in the legislation as Chapter 1 of Part

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