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HMRC internal manual

Employment Income Manual

Employment income: basis of assessment for general earnings: assessments made after a change of practice: cases involving exemption from tax

Section 709 ITEPA 2003 and Walters v Tickner (66TC174)

In the case of Walters v Tickner (66TC174), the Court of Appeal ruled that what is now Section 709 ITEPA 2003 did not apply to certain income which had suffered PAYE. The Special Commissioners had determined that the income was not income from employment, even though PAYE had been operated at the time of payment. The Special Commissioners’ view was that the income was what is now Trading Income , but was exempted by Section 776 IT(TOIA) 2005 (Section 331 ICTA 1988) (the scholarship exemption, see EIM06205).

The Inland Revenue had accepted the Special Commissioners’ decision on that point. Nevertheless the Inland Revenue argued that as the income had suffered PAYE, and as the generally prevailing practice before the Special Commissioner’s decision was to treat the income in question as income from an employment, Section 709 required certain assessments to be made on the basis of the old practice.

The Court decided that the outright exemption conferred by Section 776 IT(TOIA) 2005 (Section 331 ICTA 1988) must apply. The income was income from a scholarship and regardless of the merits of the Section 709 ITEPA 2003 issue, Section 776 (Section 331) exempted the income.

Caution is therefore necessary in considering the application of Section 709, particularly where it is subsequently found that the income is exempt, or not taxable as employment income.