Income Tax (Earnings and Pensions) Act 2003 section 346

Deduction for employee liabilities and expenses

Section 346 allows employees to claim tax deductions from their employment earnings for certain payments they make in connection with liabilities, legal costs and insurance premiums arising from their employment.

• Employees may deduct payments made to settle employment-related liabilities, and costs incurred in defending claims, giving evidence, or being involved in proceedings or investigations connected with their employment.
• Premiums paid under qualifying insurance contracts are also deductible, but only to the extent they relate to indemnifying the employee against employment-related liabilities or covering the eligible costs described above.
• No deduction is available where it would be unlawful for the employer to insure against the liability or costs in question, or where the payment is made under arrangements whose main purpose (or one of whose main purposes) is tax avoidance.
• Key definitions apply broadly: "acts" includes failures to act; "giving evidence" includes making statements or answering questions; and "proceedings" covers civil, criminal, arbitration, disciplinary, regulatory and dispute resolution processes, including those that are merely anticipated.