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HMRC internal manual

Employment Income Manual

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The year that earnings are "for"

Section 16 ITEPA 2003

Section 16 sets out when earnings are “for” a particular tax year. The general approach is to link this to the year in which they were earned or are “…otherwise in respect of…” The provision anticipates that earnings could be “for” a period that consists of more than one tax year. In such a case, the earnings attributable to each of the tax years falling into the period are to be determined by just and reasonable apportionment.

There was no equivalent to Section 16 in the Schedule E legislation in ICTA 1988. Explanatory Note 6 that was published to accompany the Income Tax (Earnings and Pensions) Bill explains that Section 16 was drafted to clarify references to “general earnings “for” a tax year”. It was not intended to introduce any change. Rather, it was hoped that Section 16 would reflect the approach taken by the Courts if they ever had to decide on this point.

This question has no relevance when deciding the tax year in which the tax charge arises. Earnings are assessed to tax in the tax year in which they are “received”. The definition of “received” is set out in Section 18 (see EIM42200).

Why is it important to know the tax year that earnings are “for”?

Section 16 establishes the year that earnings are “for”. Once this has been done, the next step is to decide which of the rules in Part 2 Chapters 4 and 5 apply to calculate taxable earnings.

For the majority of UK Resident and Ordinarily Resident (R/OR) and domiciled employees, the question of the year earnings are “for” has little consequence. This is because all of their earnings are chargeable to UK income tax in consequence of their residence and domicile status. In addition, most earn and receive their earnings in the same tax year. However, for those employees who are other than R/OR and UK domiciled and who receive earnings in different years from those in which they earn them, the question continues to be relevant.

Principles from case law

The absence of statutory provision in ICTA 1988 and earlier enactments resulted in various cases being litigated through the 20th century.

  • Edwards v Roberts (19 TC 618)
  • Hunter v Dewhurst (16 TC 605) (Henry v Foster)
  • Draycup v Radcliffe (27 TC 188)
  • Heasman v Jordan (35 TC 518)
  • Board of Inland Revenue v Suite (Privy Council) ([1986] 2 All ER 577)
  • Griffin v Standish (67 TC 317)
  • Bray v Best (61 TC 705)

Before 1989, the year that earnings were “for” also dictated the year in which income tax was assessed. “Receipts basis” replaced “earnings basis” in 1989.

The case of Bray v Best (61 TC 705), was heard by the House of Lords in 1988. Lord Oliver set out the preferred approach at page 752:

“The period to which any given payment is attributed is a question to be determined as one of fact in each case, depending upon all of the circumstances, including its source and the intention of the payer so far as it can be gathered either from direct evidence or from the surrounding circumstances.”

Lord Oliver’s approach to determining the year that earnings are “for” continues to apply. Section 16 simply confirms the recommended approach.