What counts as employment income for UK tax purposes?

Full answer

Employment income for UK tax purposes is defined under the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) and covers all emoluments received in return for an office or employment. The core categories are: (1) Cash earnings -- regular wages and salary, overtime pay, bonuses, commissions, tips (whether paid by employer or customer), holiday pay, and sick pay paid by an employer above the SSP level. (2) Benefits in kind -- non-cash benefits provided by your employer that have a monetary value, such as a company car, private medical insurance, gym membership, or living accommodation. Benefits are reported on form P11D each year and taxed through your PAYE code or via self assessment. Some benefits are exempt, including canteen meals, workplace nurseries, and certain trivial benefits below GBP50. (3) Share-based income -- gains from approved share schemes such as EMI, CSOP, SAYE, and SIP are taxed according to the scheme rules; gains from unapproved share awards or phantom share plans are taxed as employment income under PAYE when shares vest. (4) Termination payments -- the first GBP30,000 of a genuine redundancy or termination payment is tax-free. Any amount above GBP30,000 is subject to Income Tax. Post-employment notice pay (PENP) -- the portion of a termination payment relating to unworked notice -- is fully taxable from day one and subject to National Insurance. (5) Other items -- employer contributions to pensions are not employment income for the employee; employee pension contributions are deducted before tax under relief-at-source or net-pay arrangements. Expenses payments that are wholly, exclusively, and necessarily incurred in performing employment duties may be reimbursed tax-free or claimed as a deduction. For 2026/27, the Personal Allowance of GBP12,570 applies before Income Tax is charged. Tax rates: 20% (GBP12,571--GBP50,270), 40% (GBP50,271--GBP125,140), 45% above GBP125,140.

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