Income Tax Act 2007 section 938

Consequences of reasonable but incorrect belief

Section 938 deals with what happens when a company, local authority or qualifying partnership makes a payment without deducting income tax, reasonably but incorrectly believing the payment was exempt from the deduction requirements.

• Where a company, local authority or qualifying partnership makes a payment without deducting income tax, genuinely and reasonably believing it qualifies as an excepted payment
• If that belief turns out to be wrong — meaning the payment was not actually an excepted payment at the time it was made
• The normal duties to deduct income tax at source are treated as having applied all along, as though the exemption had never been available
• In effect, the payer cannot rely on its reasonable but incorrect belief to escape the obligation to account for income tax on the payment