Income Tax (Trading and Other Income) Act 2005 section 596

Adjustments where tax has been deducted

Section 596 deals with how tax adjustments are handled when tax has already been deducted at source from payments made to non-UK residents for intellectual property, and sets out the rules for repayment where the seller has elected to spread the income over six years.

• Where tax has been deducted from a payment to a non-UK resident and an adjustment is needed — whether because of the deduction itself or because the seller has elected to spread the income — the adjustment must be made by way of a tax repayment.
• If the seller has elected to spread the income over six years, adjustments are made year by year, with one-sixth of the tax deducted from the sale proceeds or instalment treated as income tax paid for each of those six years.
• No repayment of tax attributed to a particular year is made until it has been established that the income tax ultimately due for that year is less than the amount treated as already paid for that year.
• The effect is that any over-deduction of tax only results in a refund once the final tax liability for each individual year within the six-year spreading period has been determined.