Income Tax (Earnings and Pensions) Act 2003 section 716A

Priority rule for dividends etc. of UK resident companies etc.

Section 716A establishes a priority rule that determines how income is taxed when it could fall under both the employment income provisions of this Act and the dividend income provisions of a separate tax statute.

• Where income could be taxed both as employment income (under Parts 2, 9 or 10 of this Act) and as dividend income from UK resident companies, the dividend rules take priority
• The dividend rules are found in the Income Tax (Trading and Other Income) Act 2005, which deals specifically with dividends and similar distributions from UK resident companies
• This priority rule prevents the same income from being taxed twice under two different sets of provisions by directing it to the dividend regime
• There is one exception: where employment income is provided through third parties and a "relevant step" gives rise to an employment income charge under section 554Z2, that charge can override the dividend priority rule