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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Employment income: meaning of earnings: non-cash earnings: earnings for NIC 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 (see EIM00530)
  • 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 (see EIM00530).

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. There is a list of these special provisions at EIM00513.

Earnings for NIC purposes

The word earnings is defined differently for NIC purposes. The NIC definition is in Section 3(1) SSCBA 1992, which says that earnings, for NIC purposes, includes any remuneration or profit derived from employment (see NIM02010).

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