BIM42601 - Specific deductions: annuities and annual payments: general

ICTA88/S74 (1)(m) stops the deduction in business accounts of an annuity or other annual payment. Broadly speaking, an annual payment will be:

• paid under a legal obligation,
• annually recurring,
• pure income profit in the hands of the recipient.

A payment made in return for goods or services, or under a legally enforceable contract for the provision of goods or services, will not be pure income profit in the hands of the recipient and is likely to be outside the prohibition in Section 74 (1) (m). In cases where there is doubt or difficulty as to whether a large payment qualifies for deduction in the business accounts or falls within the prohibition for annual payments, advice may be obtained from CT&VAT (Technical).

Inadmissibility independent of whether tax retained

An annuity or annual payment falls within the prohibition whether or not the payer has a right to retain tax on payment, and whether such a right is enforceable or is exercised. For further guidance see IM3900 - IM3922.

As regards:

• interest payments, see BIM45650 onwards
• deduction for certain annual interest payable abroad without deduction of tax, see BIM45775 - BIM45776.

Life assurance companies dealing in annuities

An annuity or other annual payment should be regarded as covered by the terms of ICTA88/S74 (1)(m) and not as an expense in arriving at the amount of the profits, except in cases such as a life assurance company dealing in annuities. (See Gresham Life Assurance Society v Styles, [1892] 3TC185.)