A payment made under the terms of a contract of employment is
taxable as earnings within Section 62 ITEPA 2003 if it is part of
the remuneration for the employee's services. This is so even if
the contract describes the payment as something else. For example,
a contractual termination payment may be mistakenly described as
compensation for loss of office. Such a payment is nevertheless
taxable in full as earnings within Section 62 (see
You may have to look beyond the bare contract of employment to decide if a payment is contractual. Additional terms and conditions may be found in such things as staff handbooks and wage negotiation agreements. In the case of a director with no written service agreement, you may have to look at the company's articles of association to find out what is due.
Decided cases that illustrate that a sum payable under a contract of employment is taxable as earnings include:
Payments made under the terms of a contract of employment must
be distinguished from payments that are made because the contract
is cancelled altogether. See 'Compensation for loss of office' at
As regards payments made as a result of the termination of an employment due to the death or disability of an employee, see EIM13600.
Note that a genuine redundancy payment, whether contractual or not, does not count as earnings within Section 62 (seeEIM13750).