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HMRC internal manual

Employment Income Manual

Employment income: what does not count as negative earnings?

Not from the employment: from something else

In HMRC v Julian Martin, at paragraph 55 of his decision, Judge Warren stated:

“It is clearly the case that not every payment which an employee makes to an employer is negative general earnings. This is not a matter of dispute.  To give an obvious example, the repayment of money which a cashier had stolen from their employer’s till would not be such an item. The mere existence of an employment relationship is not enough.”

Judge Martin expanded on this in paragraph 56 as follows:

“Nor is a connection between the payment and the contract of employment of itself necessarily sufficient. A claim for an account of profits alternatively for damages where an employee misuses his employer’s trade secrets or acts in breach of a restrictive covenant during the course of his employment can be said to arise out of the contract of employment: it certainly has a connection with it. But no one would suggest that a payment pursuant to an order for an account of profits or damages would entitle the employee to assert that the payment was negative general or taxable earnings”.