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HMRC internal manual

Employment Income Manual

Employment income: general: payments for additional duties

Section 62 ITEPA 2003

If an employee performs additional duties for an employer that the employee is not obliged by the contract of employment to undertake, any additional payments the employee receives will normally be taxable as earnings within Section 62 ITEPA 2003 if they are payments for those services.

In Mudd v Collins (9TC297) a company director negotiated the sale of a branch of the company’s business and was paid a lump sum as a commission. He claimed it was a voluntary gift that was not taxable because negotiating the sale was not part of his duties. The judge said (page 300):

“If an officer is willing to do something outside the duties of his office … and his employer gives him something in that respect, that is a profit; it becomes a profit of his office which is enlarged a little so as to receive it.”

The same principle was followed in Shipway v Skidmore (16TC748) and Lindsay v CIR (41TC661). It would apply, for example, where the employees of a pharmaceutical company volunteered to test drugs for payment if the opportunity to do so arose because they were employees.

This principle does not apply where the payment is not for services. For example, in Donnelly v Williamson (54TC636) a school teacher received a car mileage allowance for travelling to parents’ evenings - something she was not obliged to do at that time under the terms of her employment. It was not a payment of earnings because she was performing duties outside her contractual duties and it was not in respect of the services she gave.

In principle, it is possible for an employee or office holder to tender for work with their employer outside their normal duties, in circumstances where that individual will not be providing service as an employee or office holder but as a self-employed contractor. In those exceptional circumstances any amounts invoiced for and received will fall to be taken into account as Trading Income in arriving at the profit from the self-employment and will not be chargeable to tax as employment income. Where there is any doubt about whether service is provided constitutes employment or self-employment, see the Employment Status Manual (ESM). Any whether a particular engagement amounts to self-employment should be referred to the nominated status officer for advice. See ESM0102.