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HMRC internal manual

Employment Income Manual

Section 554Z11B and C: introduction

ITEPA 2003 – sections 554Z11B and C

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.

Sections 554Z11B and 554Z11C deal 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. Section 554Z11B details the circumstances which need to apply for relief to be given. Section 554Z11C gives details of how relief is given in a wide range of circumstances.

These provisions operate differently to section 554Z5. In that section relief is given by reducing the value of a relevant step. To get relief under section 554Z11C a payment of tax must be made in respect of one of the liabilities. Section 554Z11C gives relief by treating the payment of that liability as a payment on account of the other. The single payment will frank both charges to tax to the extent that they arise from the same amount of income.

The start point for any such calculation has to be to identify which charge is being paid by the taxpayer. If the earlier tax liability is being paid, it is necessary to consider how much of that liability relates to the income included in the later charge on the relevant step. If the relevant step charge is being paid, it is necessary to consider how much of the income included in that charge relates to the earlier tax liability.

The identification of the overlapping value of the sum of money or asset is essential since separate charges may be in different tax years and the overlapping income may be charged at different rates. It is therefore necessary to identify what proportion of each charge relates to the overlapping value or income.

This is particularly true when dealing with an overlap between the income included in one Part 7A relevant step and income included in more than one previous charge to tax.

Section 554Z11C provides different ways of giving relief where a taxpayer chooses to pay a charge and there is an overlap between that charge and 2 or more previous charges.

Where a taxpayer chooses to pay a charge where the same amount of income is included in one or more other charges, the provisions of section 554Z11C(1) to (6) give relief for the other charges by treating the payment made as franking the liability on the other charges. This is only to the extent that the income overlaps between the charges.

Where a taxpayer pays a Part 7A liability which overlaps with a number of other charges which are all based on separate amounts of income, the provisions of section 554Z11C(7) to (10) are used to give relief. This is done by clearing the Part 7A liability from the amount paid but franking the other liabilities by apportioning the payment between them as well. 

The earlier tax liability can be a liability of the employee personally or of any person linked with them – section 554Z11B(5)(a).

Any reference to a liability to Income Tax does not include any liabilities by reason of section 175, which charges the benefit of having a taxable cheap loan as earnings. Any amounts paid on the benefit of a loan declared on a P11D will not be available for relief. The benefit under section 175 is a charge on having a loan at a low rate of interest rather than an acceptance that what was described as a loan was in reality an amount of income – section 554Z11B(5)(b).