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Murphy: earnings as profits and settlement payments

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The question of what amounts are taxable as ‘earnings’ of an employee is a fundamental one. In relation to payments which are not ‘salary’ or ‘wages’, the focus of the courts in determining whether a payment falls within the concept of ‘earnings’ has largely been on the question of whether the payment is one that is ‘from’ the employment. However, the Upper Tribunal decision in Murphy v HMRC highlights the fact that there is a second important concept in ITEPA 2003 s 62(2)(b) that must be met in appropriate cases: that of ‘profit’. As such, parts of a settlement payment which related to the employees’ costs in the form of a success fee and an insurance premium, were not ‘earnings’.
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