Commentary on Sections Overview Overview
2709.This Chapter requires the deduction of sums representing income tax from certain annual payments and patent royalties. It is based on sections 4, 125, 347A, 348 and 349(1) of ICTA and section 727 of ITTOIA.
2710.These rules are coupled with those providing for relief for certain of the payments concerned in computing net income: see Chapter 4 of Part 8 and the related commentary. Together, the rewritten rules replace the scheme of the source legislation relating to charges on income (which owes its origins to the historic concept of alienation of income). See Change 81 in Annex 1.
2711.Sections 348 and 349(1) of ICTA are at the heart of the material about deduction of tax in the source legislation and have a very long history. The basic structure is that a payment falls within section 348 if it is payable wholly out of income brought into charge on the payer, but falls within section 349(1) if it is not payable wholly out of such income. (Payments which are deductible in computing income from a given source are not made out of income charged to tax and therefore fall into section 349(1).)
2712.The main differences between those sections in relation to deduction of tax are that
	deduction is optional under section 348 of ICTA but mandatory under section 349(1) of ICTA; and
	under section 348 the tax is in effect collected as part of the tax charged on the payer’s income, but under section 349(1) the tax is directly assessed (section 350 of ICTA).
2713.As a result of Change 81 deduction is made mandatory in all cases and the machinery for collecting the sums deducted has been changed, with direct assessment applying in fewer cases.