E1.801 Duty to deduct tax from annual payments, and relief for payer
Annual payments were historically treated under the rules for charges on income. These allowed for the shift of income out of the hands of the payer and into the hands of the recipient. These rules were rewritten in ITA 2007 and a brief historical background is provided at the end of this article.
In the modern context, the receipt of annual payments is charged to income tax in the hands of the recipient as miscellaneous income1 (see E1.510), unless these payments are taxed under other provisions or specifically exempted2. The exemptions3 are discussed in E.1551 and E1.552 looks specifically at exemptions that apply to certain payments made by individuals4.
The treatment of annual payments from the perspective of the payer is discussed in this article. However, in practice the application of these provisions will largely be limited to partners paying retirement annuities, or unincorporated traders making annual payments for commercial reasons. The impact is therefore limited.
Annual payments made by a non corporate body, or made by an individual for commercial reasons in connection with their trade profession or vocation5, must have basic rate tax deducted from them by the payer6.
The basic rate is that which is in force in the tax year in which the