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indeed be treated as taxable on Mr Murphy as earnings ‘from’ an employment. The Upper Tribunal (UT) disagreed, but this decision was then overturned by the Court of Appeal – who considered the deliberations made by the UT and then decided they agreed with the FTT. What was the UT’s view? The UT concluded that something could only be regarded as ‘earnings’ within Section 62 of ITEPA if it fell within the expression 'any other profit… obtained by the employee' in Section 62(2)(b) of ITEPA. Two words requiring clarification were noted by the UT – and this led them to conclude that the FTT had erred by only considering the word ‘from’: l whether the alleged profit was derived from the employment as required by the definition of general earnings in Section 9 (2) of ITEPA 2003 (the ‘from’ issue); and l what is the meaning of ‘profit’ in Section 62(2)(b); in particular, whether it refers to 'gross' profit or 'net' profit and, if the latter, what items can be considered in computing the net profit for these purposes? (The ‘profit’ issue.)
to Hochstrasser (Inspector of Taxes) v Mayes [1960] AC 376, which concludes that an amount has to not only be derived from the employment, but also to be a reward for services at the same time. The Court of Appeal thus concluded at Paragraph 59 of the judgment, that: “The Met was right to deduct PAYE from the whole of Mr Murphy's share of the Principal Settlement Sum”. Conclusion The case reflects the fact that if one strips back the layers of the onion, the facts should point one to the basic principles of the law – and in this case, that’s exactly what happened. n The case reflects the fact that if one strips back the layers of the onion, the facts should point one to the basic principles of the law
The UT considered that the insurance premium and conditional success fees were costs / potential costs which had to be incurred to enable the appeal process to happen at all, and that they did not represent a profit, nor earnings under Section 62 ITEPA 2003. The UT cited the case of Eagles (Inspector of Taxes) v Levy [1934] 19 TC 23, opining that it supported the view that if a taxpayer has an outlay to achieve a legitimate aim, then it shouldn’t count as income from the employment. Court of Appeal The Court of Appeal disagreed with this viewpoint and upheld HMRC’s appeal on the grounds that the term ‘profit’ didn’t confer an automatic assumption of net profit and the normal rules for expenses must be observed – namely that the expenses in question didn’t qualify for a tax deduction because they had not been incurred ‘wholly, exclusively and necessarily’ in the performance of the officers’ employment duties. In terms of the ‘from’ question, the Court of Appeal confirmed that the correct way to determine whether a payment meets the definition is to refer
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| Professional in Payroll, Pensions and Reward |
Issue 85 | November 2022
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