Deduction of tax at source—miscellaneous
A4.471 Agreements for payment without deduction of tax
Where the Taxes Acts authorise the deduction of tax from a payment of interest, rent or other annual payment, any agreement which provides for payment in full without allowing for this deduction is void1. This is interpreted as voiding, not the whole agreement, but only the part relating to payment in full2. The provision applies only to agreements and not to Wills3, voluntary settlements or to orders of the court, although an agreement or covenant carrying out an order of the court is within the prohibition4. Thus, in the case of an annuity paid directly under a court order, the provision is not applicable. However, if a deed is drawn up between the parties to give effect to such an order, the provisions apply to that deed. The deed must be drafted so as to carry out the intention of the court order without contravening the provision. On the other hand, a court order giving effect to an agreement, or one obtained in lieu of a maintenance agreement which the husband has broken, is not affected by the provision5.
Rectification of agreements to give effect to an intention to make payments net of tax may be allowed in certain circumstances. Thus in Burroughes v Abbott6 rectification was allowed where a deed failed to carry out the terms of a court order and to provide tax free payments, and in Jervis v Howle and Talke Colliery Co Ltd7
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