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Employment Income Notes

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This is an extract of our Employment Income document, which we sell as part of our Tax Law Notes collection written by the top tier of Oxford students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Tax Law Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

EMPLOYMENT INCOME Introduction
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Employers handle most of the employee's taxation. Those who are self-employed are required to self-assess - this includes a yearly return to the HMRC of all income and capital gains.
Requirements about these returns laid down in the Taxes Management Act 1970.

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The burden of proof in tax cases is on the tax payer and not the HMRC. Appeal process is far more difficult to advance up the courts. First Tier Tribunal, Upper Tribunal before it gets to the main courts. Appeal can be on a point of law only - Edwards v Bairstow and Harrison
(1956) - However, if the only reasonable conclusion to which the Commissioners could come on a reasonable consideration of all the facts contradicts the conclusion to which they did come,
then the finding can be reversed by an appellate court.

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Inland Revenue and the former customs authorities into the HMRC. 4 approaches taken to enforcement:
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Tax payers required to notify the HMRC of any unusual activities

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HMRC has information gathering powers on a mandatory basis when necessary

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Civil penalty regime for defaulters

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Criminal prosecutions

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The ordinary time limit for assessments is 4 years from the end of the relevant tax year (amended s.34 TMA 1970) The amended s.36 extends to 6 years when an assessment is made to deal with the loss of tax brought about by the carelessness of tax payer or agent. If the loss is deliberate it is 20 years.

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Finance Act 2009, s.94 gives the HMRC the power to publish a list of taxpayers who have deliberately evaded paying tax of £25,000 or more and have been penalised as a result. Employment Income
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Income tax + NI contributions add up to over half of UK taxations.

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Law codified into the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

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ITA 2007, s.3

(1) Income tax is charged under—
(a) Part 2 of ITEPA 2003 (employment income), […]
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S.1
(1) This Act imposes charges to income tax on—
(a) employment income (see Parts 2 to [7A]),
(b) pension income (see Part 9), and
(c) social security income (see [Chapters 1 to 7 of] Part 10).

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We do not cover Parts 9 or 10 in this course. We do cover the following:
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Part 2: Employment income: charge to tax.

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Part 3: Employment income: earnings and benefits etc. treated as earnings.
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Chapter 1: Earnings.

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Chapters 2-11: Benefits code.

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Chapter 12: Other amounts treated as earnings.

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Part 4: Employment income: exemptions.

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Part 5: Employment income: deductions allowed from earnings.

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Part 6: Pension fund payments and golden handshakes. Scaffolding Provisions
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S.13 ITEPA 2003

(2) If the tax is on general earnings, "the taxable person" is the person to whose employment the earnings relate.
(3)If the tax is on specific employment income, "the taxable person"
is the person in relation to whom the income is, by virtue of Part 6, 7 or 7A or any other enactment, to count as employment income.
(4) If the tax is on general earnings received, or remitted to the
United Kingdom, after the death of the person to whose employment the earnings relate, the person's personal representatives are liable for the tax.
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S.6 ITEPA 2003

(1) The charge to tax on employment income under this Part is a charge to tax on—
(a) general earnings, and
(b) specific employment income. ….
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S.7

(2) "Employment income" means—
(a) earnings within Chapter 1 of Part 3,
(b) any amount treated as earnings (see subsection (5)), or
(c) any amount which counts as employment income (see subsection (6)).
De Cogan says he has no idea what the difference between the 2 are, and he has spoken to various judges who also don't know
(3) "General earnings" means—
(a) earnings within Chapter 1 of Part 3, or
(b) any amount treated as earnings (see subsection (5)), excluding in each case any exempt income.
(4) "Specific employment income" means any amount which counts as employment income (see subsection (6)),
excluding any exempt income.
(5) Subsection (2)(b) or (3)(b) refers to any amount treated as earnings under—
(a) Chapters 7 to 9 of this Part (agency workers, workers under arrangements made by intermediaries, and workers providing services through managed service companies),
(b) Chapters 2 to 11 of Part 3 (the benefits code), […]
(6) Subsection (2)(c) or (4) refers to any amount which counts as employment income by virtue of—
(a) Part 6 (income which is not earnings or share-related), […] …
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S.8

For the purposes of the employment income Parts, an amount of employment income within paragraph (a), (b) or (c) of section 7(2)
is "exempt income" if, as a result of any exemption in Part 4 or elsewhere, no liability to income tax arises in respect of it as such an amount.

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S.9

(6) Accordingly, no amount of employment income is charged to tax under this Part for a particular tax year unless—
(a) in the case of general earnings, they are taxable earnings from an employment in that year, or
(b) in the case of specific employment income, it is taxable specific income from an employment for that year. Timing Provisions
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Could be a minor point in a PQ - doing work in one year and being charged in another.
Tax charge does not necessarily arise in the period in which the work is performed

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S.15

(1) This section applies to general earnings for a tax year for which the employee is UK
resident except that, in the case of a split year, it does not apply to any part of those earnings that is excluded.
(2) The full amount of any general earnings within subsection (1) which are received in
!a tax
S.18 year is an amount of "taxable earnings" from the employment in that year.

(1) General earnings consisting of money are to be treated for the purposes of this
Chapter as received at the earliest of the following times—
Rule 1
The time when payment is made of or on account of the earnings.
Rule 2
The time when a person becomes entitled to payment of or on account of the earnings.
Rule 3
[Special rules for directors who are employees]

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