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HMRC internal manual

Employment Income Manual

Deductions: directors’ and officers’ liabilities: relief for ex-employees

Section 555 and 556A ITEPA 2003, Section 67 FA 2009

Section 555 ITEPA 2003 provides for deductions from total income for ex- employees’ uninsured liabilities:

  • that they themselves have to bear and
  • that are not deductible under Section 346 ITEPA 2003 (see EIM30501 onwards) but would be so deductible if the ex-employee had:

    • continued to hold the office or employment in respect of which the liability arose and
    • met the liability out of the earnings of that office or employment.

Note that Section 346 ITEPA 2003 (See [EIM30509]( has been amended with effect from 6 April 2017 to include additional liabilities and expenses for which a deduction is available.

The provisions also effectively cancel out charges under:

  • Part 6 Chapter 2 ITEPA 2003 (benefits from non-approved or employer-financed pension schemes) and
  • Part 6 Chapter 3 (payments, including `valuable consideration’ provided in connection with the termination of an employment)

where the charge would arise as a result of someone other than the employee

  • bearing the employee’s qualifying liability (see EIM30511) or
  • providing him or her with a cover under a qualifying contract of insurance (see EIM30513).

No deduction is allowed for a payment that would otherwise meet the conditions of section 555 if it is made in pursuance of arrangements the main purpose, or one of the main purposes of which, is the avoidance of tax.