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HMRC internal manual

Employment Income Manual

Employment income: bank charges

Section 62 ITEPA 2003Some employers pay their employees’ salaries and wages by direct credit to their bank accounts, that is by a credit transfer. They may also pay their employees’ bank charges by crediting their bank accounts with sums sufficient to cover the charges. Any such sum credited to an employee’s bank account or paid to them in cash will normally be part of the employee’s earnings within Section 62 ITEPA 2003 (see

EIM00515) and PAYE should be operated.

Exceptionally, the bank charges may occur solely as a result of a failure by the employer. For example, most employees are entitled to expect that they will be paid on or around a particular day each month. The entitlement may be set out in a written contract, or it may be established by custom and practice. If the employer fails to pay them at the proper time, the employee may incur unforeseen bank charges. In that case, the employer has breached the employment contract and the employee has suffered a consequential loss for which he or she may sue the employer. If the employer makes a payment to compensate the employee (for example, by paying the bank charges) the amount so paid is not taxable as earnings within Section 62. The payment is not from the employment (see EIM00600) but from something else - namely, the employer’s breach of contract. Similarly, there is no payment of earnings if the employer reimburses the employee for the costs of obtaining evidence that such charges have been paid,

Nor, in that situation, is the employer’s payment treated as earnings under the benefits code. It is in the nature of a fair bargain. The employee accepts the payment in return for giving up his or her right to sue the employer for compensation. A fair bargain is not a benefit (see EIM21004).