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HMRC internal manual

Employment Income Manual

Other expenses: professional fees and subscriptions: subscriptions paid under a deed of covenant

If an allowable annual subscription to an approved body is paid under a deed of covenant the deduction will usually be offset by further liability of approximately the same amount under Section 350 ICTA 1988.

In practice, the gross amount payable under the deed should normally be retained in charge in the usual way. No deduction should be given under Section 343 or 344 ITEPA 2003 unless the taxpayer requests a more precise adjustment of his liability. This is illustrated in the following example.


An employee who is liable to tax at the basic rate on the top slice of his income qualifies for an expense deduction in respect of his annual subscription of £100 to a body approved under Section 344 in 2003/04.

He has executed a deed of covenant to pay to the body such an amount as, after the deduction of tax at the basic rate, will equal the amount of the annual subscription of £100. If the basic rate for the tax year is 22 per cent, the payment under the deed will be gross £128.20 less income tax £28.20 leaving a net payment of £100.

In strictness, an expense deduction of £100 would be allowable under Section 344, but no deduction is due in respect of the £28.20 difference between the gross and net payments under the deed. That difference is regarded as a donation to the body.

As an expenses deduction is strictly allowable in respect of the £100 payable under the deed of covenant, that amount cannot be regarded as paid out of profits or gains brought into charge. Further liability accordingly arises under Section 350. The balance of the gross amount payable under the deed (£28.20) would be retained in charge under Section 276 ICTA 1988.