Income Tax (Earnings and Pensions) Act 2003 (c. 1)

Part 8 Former employees: deductions for liabilities

Deductions from total income

555 Former employee entitled to deduction from total income

(1) This Part applies if—

(a) a former employee makes a deductible payment, or

(b) a former employer makes a deductible payment on behalf of a former employee and the payment is treated—

(i) as a relevant retirement benefit, or

(ii) as post-employment earnings,

of the former employee.

(2) A deduction of the amount of the deductible payment may be made when computing the former employee’s total income for the tax year in which the payment is made.

(3) Subsection (2) applies only if the former employee makes a claim to the deduction.

(4) The entitlement to a deduction under this section is subject to sections 556 and 557.

(5) For the application of this Part in relation to former office-holders, see section 564.

(6) For relief from capital gains tax where the amount of the deduction allowed under this section exceeds total income, see section 263ZA of TCGA 1992.

556 Deductible payments made outside the time limits allowed

(1) No deduction may be made under section 555 if the deductible payment is made—

(a) on or before the day on which the former employee ceased to hold the former employment, or

(b) after the end of the sixth tax year following the tax year in which the former employee ceased to hold the former employment.

(2) If subsection (1)(a) applies, see section 346 (deduction for employee liabilities).

557 Deductible payments wholly or partly borne by the former employer etc.

(1) This section applies if—

(a) a deductible payment is made by the former employee (and not by the former employer on behalf of the former employee), but

(b) the whole or a part of the cost of making the payment is borne—

(i) by the former employer, or

(ii) out of the proceeds of a contract of insurance.

(2) No deduction of the amount of the cost borne as mentioned in subsection (1)(b) (the “relevant amount”) may be made under section 555.

(3) But this is subject to subsection (4) if the whole or a part of the relevant amount is treated—

(a) as a relevant retirement benefit of the former employee, or

(b) as post-employment earnings of the former employee.

(4) In such a case, a deduction of so much of the relevant amount as is treated in that way may be made under section 555.