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HMRC internal manual

Employment Income Manual

Employment income: meaning of earnings: non-cash earnings: earnings for NICs purposes

Section 7(3)(a) and section 62 ITEPA 2003

Meaning of ‘earnings’

For tax purposes, the word ‘earnings’ in relation to an office or employment means:

  • any salary, wages or fee
  • any gratuity or other profit or incidental benefit of any kind obtained by the employee if it is money or money’s worth
  • anything else that constitutes an emolument of the employment

This is a wide definition. The second and third bullets ensure that all money payments that are similar to salaries, fees and wages are taxed as earnings. Examples are bonuses, commissions, tips, overtime pay and extra money earnings of any kind.

Non-cash earnings

Employees may receive a gratuity or profit from the employment that does not take the form of money. These amounts count as earnings within section 62 ITEPA 2003 if they are money’s worth.

Other benefits in kind may be taxed under special provisions that deem them to be earnings, or that direct that they are taxed as employment income.

Earnings for NICs purposes

The word ‘earnings’ is defined differently for NICs purposes. The NICs definition is in section 3(1) SSCBA 1992, which says that earnings, for NICs purposes, includes any remuneration or profit derived from employment.

In most cases, a payment that counts as earnings for tax purposes will also be earnings for NICs purposes. But the different definitions may lead to marginal differences between tax and NICs. So, in a disputed case, it’s important that you consider the tax and NICs definitions separately. Do not assume that the tax definition invariably applies for NICs, or vice versa.