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HMRC internal manual

Employment Income Manual

Section 554Z11C: the earlier charge

ITEPA 2003 – sections 554Z11C(1)(a)

Section 554Z11C(1)(a) - The earlier charge

There needs to be an earlier charge to tax on the sum of money or asset when compared to the charge on the later relevant step. The phrase “the earlier charge” however does not necessarily refer to the full amount of the earlier tax liability. It refers to the amount of the earlier tax liability which arises from the same income as the Chapter 2 overlap charge i.e. it refers to the tax arising from the overlap between sum or asset P or sum or asset Q. This introduces 2 related concepts.

It is necessary to define the overlap between sum or asset P and sum or asset Q – this is detailed in section 554Z11B – identification of sums or assets P and Q. It is important to remember that the overlap is on an amount of income rather than any consequential tax liabilities.

It is then necessary to consider the overlap in terms of the charges arising. Although the overlapping amount will be the same in both charges, it is necessary to consider how much of the total tax liability relates to the income that is common to both charges. The earlier charge is that part of the total earlier tax liability which relates to the overlapping amount of income included in both charges.


A loan of £50,000 is made in 2018-2019 from an amount of £200,000 earmarked in 2014-2015. The overlapping amount is £50,000 which is 25% of the total sum which was previously earmarked. The overall earlier liability is the total tax due on £200,000 at 45% which gives an earlier tax liability of £90,000. Since 25% of this liability relates to overlapping income, the total earlier charge is £90,000 × 25% = £22,500.

It is useful to note that the earlier charge will be on sum or asset Q.