Income Tax (Earnings and Pensions) Act 2003 section 559

Liabilities related to the former employment

Section 559 defines the types of liability connected to a former employment that can give rise to payments eligible for tax relief.

• A liability is related to a former employment if it was imposed on the former employee because of something they did or failed to do while acting as the holder of that employment.
• The same applies where the act or omission occurred in any other capacity in which the former employee was performing the duties of the former employment.
• A liability arising in connection with legal or other proceedings relating to a claim that the former employee is subject to such a liability also counts as related to the former employment.
• In both cases, the key test is whether the act or omission was carried out in the former employee's capacity as holder of the employment, or in another capacity connected with performing its duties.