B2. Income (general)

- The nature of income

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Income implies an element of profit

- Things provided for full value are not ordinarily regarded as a receipt of income

- "[3]...Goods or services supplied to an employee for full value would not ordinarily be regarded as conferring a benefit on the employee or as involving the receipt of income by him. A tax on the value of such goods or services would therefore be in the nature of a tax on consumption, rather than a tax on income. Of course, it is open to Parliament to deem the value of such goods or services, or indeed anything else, to be income, but one would expect Parliament to do so in clear terms." (Apollo Fuels).
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The same income can only arise once

- "[16]...The first and principal reason is that the ordinary man on the underground would consider it to be counter-intuitive that a person would earn remuneration both when his employer paid money into a trust to create a fund for his benefit and again when at a later date that trust fund was paid out to him The argument would in principle apply also when a company gave an employee a bonus, which was put into a trust or in an escrow fund and was payable at a future date only if the company performed to a specified level by then: he would earn the bonus twice I am reluctant to attribute such a view to Parliament absent clear words or necessary implication, of which there are neither." (Forde and McHugh Limited)

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Income remains income even if it must be applied for some purpose

- If a person is entitled to income but is bound or agrees with a third person to use that income in a particular way, that does not affect the character of the sum as income (and see below on the meaning of 'entitled').

- If the agreement is made with the person from whom the income arises, the same principle applies if the agreed use of the income can be regarded as an application of that income by the person entitled to it. 

- Smyth v. Stretton: salary increase was to be retained by employer to be used to provide a provident fund for employees. Employee became entitled to accumulated sums plus compound interest in retirement. 

- "… a sum receivable by way of salary or wages is not the less salary or wages taxable because for some reason or another the person who receives it has not got the full right to apply it just as he likes. The fact that income which is income, but which has even by operation of some statute to be devoted compulsorily to some purpose or another, does not prevent it being income." (at 42).

- The result would have been different if, instead, the college had simply awarded bonuses on retirement (at 42).

- Hudson v. Gribble: "I think that under these circumstances all that can be truly said as to these sums is that payment of them was postponed." (at 526).

- But if the obligatory use of the 'income' cannot be regarded as an application of it by the person said to be entitled, that should not be income.

- For instance, if an agreement provides for a sum to be paid at one stage in an agreement and then repaid as a rebate at another stage.

- Or if T is offered a pay rise of £100 as long as T agrees that £50 of that will be paid to an unrelated employee. 

- In Smyth, the obligatory application was for the employees own benefit: "It is exactly like the case of a person being obliged to insure his life, that would not prevent the sum being salary."

Legislation: 

Cases:

Hudson v. Gribble [1903] 1 KB 517 (CoA);

Smyth v. Stretton (1904) 5 TC 36 (Channell J);

HMRC v. Forde and McHugh Limited [2014] UKSC 14;

HMRC v. Apollo Fuels Limited [2016] EWCA Civ 157; 

HMRC manuals: 

Commentary: 

See also:

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