What is the purpose of section 189 of the Income Tax (Earnings and Pensions) Act 2003?

Section 189 prevents a double tax charge when an employment-related loan is forgiven or written off. If another provision of the Income Tax Acts already taxes the same forgiven amount as the employee's income, the section 188 earnings charge does not apply, ensuring the employee is not taxed twice on the same sum.

How does section 189 interact with termination payments under United Kingdom tax law?

If the only other provision that would tax a forgiven loan amount is the termination payments legislation in Chapter 3 of Part 6, section 188 takes precedence. The forgiven loan is taxed as employment earnings under section 188, and the termination payments rules do not apply, providing clear priority between the two charges.

How does section 189 handle partial overlap with the settlements legislation under section 633 of ITTOIA 2005?

If part of a forgiven loan is already taxed under section 633 of ITTOIA 2005 settlements rules, section 188 applies only to the excess. For example, if £15,000 is written off and £9,000 is taxed under section 633, only the remaining £6,000 is treated as earnings under section 188, ensuring full coverage without double counting.

Which tax provision takes priority when an employment-related loan is written off in the United Kingdom?

Generally, if another Income Tax Acts provision already taxes the forgiven amount, that provision takes priority and section 188 does not apply. However, section 188 takes precedence over termination payments rules. Where settlements legislation partly taxes the amount, section 188 applies only to the untaxed remainder.

Income Tax (Earnings and Pensions) Act 2003 section 189

Exception where double charge

Section 189 prevents a double tax charge arising when an employment-related loan is forgiven or written off and another tax provision already taxes the same amount.

Where another Income Tax Acts provision already taxes the forgiven or written-off loan amount as the employee's income, the section 188 earnings charge does not apply, avoiding a double charge.
An exception exists for termination payments: if the only other taxing provision would be the termination payments rules in Chapter 3 of Part 6, section 188 takes priority and the termination rules do not apply.
Where the forgiven or written-off amount is partly taxed under the settlements rules in section 633 of ITTOIA 2005, section 188 still applies but only to the excess of the forgiven amount over the amount already taxed under those rules.
The overall purpose is to ensure that only one tax charge arises on the same forgiven or written-off loan amount, with clear rules on which provision takes precedence in each situation.

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