deductions at source

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A method of tax collection in which a person paying income to another deducts the tax on the income and is responsible for paying it to the authorities. Tax authorities have found that, in general, it is easier to collect tax from the payer rather than the recipient of income, especially if paying the tax is made a condition of the payer’s obtaining tax relief for the payment. The payee receives a credit against any tax liability for the tax already suffered. Examples of this in the UK system are PAYE, share dividends, interest on government securities, trust income, and subcontractors in the building industry.

Subjects: Financial Institutions and Services — Accounting.

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