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HMRC internal manual

Employment Income Manual

Employment income: basis of assessment for general earnings: meaning of "received"

Section 18 ITEPA 2003

With the exception of some foreign earnings (see EIM42210), money earnings are chargeable to tax in the year they are received (see EIM42201).

Money earnings are treated as received for assessment purposes, and paid for PAYE purposes, on the earliest of the following:

  • when a payment of earnings is actually made or when a payment on account of earnings is made (see EIM42270)
  • the time when a person becomes entitled to payment of earnings or a payment on account of earnings (see EIM42290)

and in the case of directors only

  • the date when earnings are credited in the company’s accounts or records (see EIM42310)
  • where the amount of the earnings is determined before the end of the period to which they relate, the date that period ends (see EIM42330)
  • where the amount of the earnings is determined after the end of the period to which they relate, the date the amount is determined (see EIM42340).

As regards the time when a person has to be a director for the special rules to apply, see EIM42360.

Note that where more than one time can be taken as the time of receipt you take the earliest time.

For example, an employee may be entitled to a payment of earnings on 31 March 2005 but actual payment may not be made until 12 April 2005. Receipt is deemed to take place on 31 March 2005 (applying the entitlement rule) and the earnings are therefore assessable in, and PAYE must be operated in, 2004/05.

Once the “received” and “payments” rules are triggered, assessment and PAYE consequences follow. It is not possible for employers or employees to rewrite history by repaying or “waiving” the right to receive earnings and claiming that tax consequences can be cancelled.

For example, a director may be entitled to receive salary from the company under the terms of a contract of employment. When the accounts are finalised after the end of the trading period it may become clear that results are poorer than expected. The director may decide to “repay” salary to help the company’s cash-flow position. The company cannot claim a repayment of PAYE nor can the director enter the reduced amount of earnings on their SA Tax Return. PAYE and employment income tax are chargeable on the full amount “received” and “paid”. The repayment of salary has no tax effect because it was made after the earnings were “received” and “paid”.

See EIM42705 for guidance on waivers in general.