What does section 848 of the Income Tax Act 2007 do?

Section 848 establishes that when income tax is deducted at source from a payment under Part 15 of the Income Tax Act 2007, the amount deducted is treated as income tax already paid by the recipient. This enables the deducted tax to be credited against the recipient's overall income tax or corporation tax liability through self-assessment.

How does tax deducted at source affect the recipient's self-assessment tax return?

When a recipient completes their self-assessment tax return, the income tax deducted at source is credited to them under the Taxes Management Act 1970. This reduces the amount of tax they owe. If the tax deducted exceeds their actual liability, the recipient is entitled to a repayment of the excess amount from HMRC.

Are there exceptions to the section 848 credit mechanism?

Yes. Section 848 does not apply to income tax deducted from payments to visiting performers under section 966 or from rental income of non-resident landlords under section 971. These categories are subject to their own separate arrangements for dealing with tax deducted at source under United Kingdom law.

Can you give an example of how section 848 works in practice?

If a company makes a £10,000 annual payment and deducts 20% basic rate tax at source, the recipient receives £8,000 and is treated as having paid £2,000 in income tax. On their self-assessment return, that £2,000 is credited against their total liability, reducing what they owe or generating a repayment.

Income Tax Act 2007 section 848

Income tax deducted at source treated as income tax paid by recipient

Section 848 establishes the principle that when income tax is deducted at source from a payment, the recipient of that payment is treated as having already paid that amount of income tax, enabling it to be credited against their overall tax liability.

When income tax is deducted (or treated as deducted) from a payment under Part 15 of the Act, the amount deducted is treated as income tax already paid by the person receiving the payment.
This credited tax is taken into account when calculating the recipient's final income tax or corporation tax liability, potentially reducing what they owe or increasing what is repayable to them.
The section does not apply to income tax deducted at source from payments to visiting performers or non-resident landlords, which are dealt with under separate rules.
The mechanism links the deduction-at-source regime to the self-assessment system, ensuring that tax already withheld is properly offset against the recipient's overall tax bill.

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