CheckLists.Tax (beta)
N8. Payment of annuity
INCOME TAX
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- Duty to deduct basic rate tax where payer is not an individual
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Deduction and accounting
- A person paying a qualifying annual payment, which includes life annuities and annual payments not otherwise charge, must deduct basic rate tax (ITA s.901).
- Payment in foreign currency - see Rhokana.
- Does not apply where the payer is an individual (s.901).
- The amount that was required to be deducted is treated as income tax charged (s.964).
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Failure to deduct
- Not permissible to deduct a larger amount from a later payment to compensate because the ability to deduct is only 'on making such a payment' (Taylor).
- Probable claim in unjust enrichment for payer, subject to defences.
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Legislation:
Cases:
Taylor v. Taylor;
Rhokna v. IRC
HMRC manuals:
Commentary:
See also:
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Deduction of tax at source
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- Duty to deduct where payer is individual acting for commercial reasons
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- Duty to deduct applies to an individual making a qualifying annual payment where it is made for genuine commercial reasons in connection with the individual's trade, profession or vocation (s.900).
- Deduct at basic rate and account for through self-assessment return (s.900(3)).
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Legislation:
Cases:
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Relief by deduction in computing income for payer
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- Relief for persons required to deduct tax at source
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Relief for individuals making commercial payments
- An individual making a payment on which he/she is required to deduct tax at source is entitled to relief.
- No relief under this provision of otherwise deductible in calculating income from any source.
- The relief is given by deducting the gross amount of the payment in calculating the individual's net income (ITA s.448).
- Capped at the amount of the individual's modified net income (s.448(4)).
- Modified net income - see ITA s.1025 and 1026.
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Relief for others
- A non-individual making a payment on which they are required to deduct tax at source is entitled to relief.
- Relief is same as above (ITA s.449).
- No relief for ineligible payments.
- Ineligible payments:
- Payment that can only lawfully be made out of capital or income that is exempt from income tax (s.450(2)).
- Payments that are not ultimately borne by the person making it unless that is because of a corresponding receipt of taxable income (s.450(5)).
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Legislation:
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