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HMRC internal manual

Employment Income Manual

Section 554Z5: earlier tax liability either paid or not yet due

ITEPA 2003 – section 554Z5

It is entirely possible for the same sum of money or asset to be subject to more than one liability to tax. It is, however, not the intention of Part 7A to tax the same amount of income twice.

Section 554Z5 deals with overlaps between money or assets which are the subject of a charge to tax as a relevant step and which have already been the subject of an earlier charge to tax. The earlier tax liability has either become due and payable and been paid in full or the person liable for the tax has agreed terms with HMRC for the payment of the liability. It also deals with cases where the earlier liability is not yet due and payable.

The charge to tax on the relevant step is described as being on sum of money or asset “P”. The earlier tax liability is on sum or asset “Q”. It needs to be reasonable to conclude that P and Q are the same sum of money or asset or that P directly or indirectly represents Q. Both charges to tax are effectively on the same income.

To obtain relief under this section, either one of 2 conditions must be met. These are called the payment condition (section 554Z5(4)) and the liability condition (section 554Z5(5)).

Where either of these conditions are met, the value of the relevant step is reduced by the amount of money or the value of the asset which overlaps with income included in the earlier charge. The reduction cannot, however, take the value of the relevant step below nil.