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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Employment income: earnings from employment: sum paid for restricting an employee's freedom within the employment

Section 62 ITEPA 2003

An employee’s conditions of service may alter through their losing rights as an employee. That happened in Hamblett v Godfrey (59TC694), where the taxpayer lost her rights under the employment protection legislation, principally the right to join a trade union. She received a payment of £1,000 in consequence. It was held to be taxable as earnings within Section 62 ITEPA 2003 (see EIM00515). Neill L J said:

“The rights had been enjoyed within the employer/employee relationship. The removal of the rights involved changes in the conditions of service. The payment was in recognition of the changes in service … It was referable to the employment and to nothing else.” (page 727)

This case demonstrates very clearly that a payment does not have to be a reward for services to be taxable as earnings within Section 62.