Taxation (International and Other Provisions) Act 2010 section 248

The rule against deduction for untaxable payments

Section 248 sets out the rule that restricts a payer's tax deduction where the corresponding payment is not taxable in the hands of the recipient.

• Where a payment between connected parties is not subject to tax in the recipient's hands, the payer's deduction for that payment must be reduced or eliminated.
• If the recipient is not liable to any tax at all on the payment, the payer's deduction is reduced to nil — meaning no tax relief is available for the expense.
• If the recipient is only partially liable to tax on the payment, the payer's deduction is reduced proportionately to reflect only the taxable portion.
• The "total deduction amount" is the key figure that is adjusted — this represents the aggregate amount that the payer would otherwise be entitled to deduct for the payment or payments in question.