EIM46045 | Section 554Z11C: the Chapter 2 overlap charge

ITEPA 2003 – sections 554Z11C(1)(b)

The earlier charge (section 554Z11C – the earlier charge) will already be due and payable at the point when a relevant step is taken using all or part of the sum or asset which was the subject of the earlier tax liability.

Since the same sum or asset is used in taking the subsequent relevant step, there will be an overlap with the income which is included in the later charge which arises on the taking of the relevant step. It is referred to in terms of a Chapter 2 charge because section 554Z2 in Chapter 2 of Part 7A ITEPA 2003 provides that the value of relevant steps taken in respect of an employee will count as employment income of that employee.

The provisions detailed in section 554Z11C – overlapping charges introduction in relation to the earlier charge also apply when identifying the Chapter 2 overlap charge. This is similarly not necessarily the full amount of the charge on the later relevant step. It is necessary to identify the overlapping income and then consider how much of that income relates to the Chapter 2 liability.

Example

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 gives rise to 100% of the total Chapter 2 liability. The overall Chapter 2 liability here is £50,000 × 45% = £22,500. Since the Chapter 2 overlap charge is that part of the total Chapter 2 tax liability which overlaps with the earlier charge, the Chapter 2 overlap charge is also £22,500.

This liability will be on sum or asset P.