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HMRC internal manual

Employment Income Manual

Employment income: negative emoluments: effect of section 11 ITEPA 2003

Not a change in the law

In HMRC v Julian Martin, Judge Warren said:

“In my view, section 11 ITEPA did not bring about a change in the law. I consider that a payment by an employee to his employer qualifies as negative general earnings if, but only if, it would have qualified as what I have called negative emoluments.”

And concluded:

“My conclusion is that a payment made by an employee can be brought into account in determining TE only where the same payment, made prior to the ITEPA, would have been brought into account in determining the amount of taxable emoluments. Section 11(3)(a) has not brought about a change in the law.”

On that view it is reasonable to say that, rather than creating something new, section 11 was designed to articulate the operation of existing legislation and practice.

On that basis, when considering whether an amount constitutes negative earnings it is appropriate to refer to established authorities to help identify what would have counted as negative emoluments under pre-ITEPA law. In that regard, Judge Warren explained:

“The correct approach, in my view, is to establish the attributes of positive taxable earnings and to see which of those are, or might with suitable adjustments, be made, applicable to the particular payment which is said to be negative taxable earnings. If an attribute is not applicable and cannot, by making suitable adjustments, be made applicable to that particular payment, then that attribute can be left out of account.”