Income, in the context of employment income is:
An employee is taxable upon all income from an employment; this includes any benefit received by virtue of an office or employment. Section 62 of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) defines earnings as:
a) any salary, wages or fee;
b) any gratuity or other profit or incidental benefit of any kind obtained by the employee if it is money or money’s worth; or
c) anything else that constitutes an emolument of the employment.
‘Money’s worth’ means something that is:
a) of direct monetary value to the employee; or
b) capable of being converted into money or something of direct monetary value to the employee.
It is not necessary for the payments to come from the employer; the leading case on this was Calvert v Wainwright [KB 1947, 27 TC 475] where an employed taxi driver received tips from passengers. The judge held that ‘tips received by a man as a reward for services rendered, voluntary gifts made by people other than the employers, are assessable to tax as part of the profits arising out of the employment if given in the ordinary way as a reward form services’.
A professional cricketer was employed by a club in the Lancashire League, the rules of which provided for collections from spectators for meritorious performances by professional players. During the 1951 season a player received eleven collections, scoring fifty or more runs on seven occasions and taking six or more wickets on five occasions. The court held that the sums were taxable, observing that the contract of employment had provided for the collections to be made. Moorhouse v Dooland [CA 1954, 36 TC 1].
Compare this with Reed v Seymour, where a county cricket club designated a match as a benefit match for one of its players. The net proceeds (gate money less expenses) were invested on the player’s behalf and later paid to him. The player was assessed to tax and the case was finally decided in the House of Lords, holding that it was not remuneration for services, but a personal gift. Reed v Seymour, [HL 1927 11 TC 625].
Another case where proceeds were not deemed to be employment income involved a professional golfer, employed by a golf club. He used to bet on the results of private games of golf and usually won. He was assessed on his winnings and the court held that the winnings did not arise from his profession or vocation. Down v Compston [KB 1937 21 TC 60].