CTM09010 - Corporation Tax: charges on income: definition

With effect from 25 July 2002 charges on income are defined at ICTA88/S338A (2). They are:

(a) annuities or other annual payments (see CTM09020),

(b) qualifying donations to charity within the meaning of ICTA88/S339 (see CTM09050),

(c) amounts allowed as charges on income under ICTA88/S587 (2)(a)(ii) (gifts of shares etc to charity).

ICTA88/S338A (3) prevents a payment which is deductible in computing profits or any description of profits for the purposes of CT from being treated as a charge on income.

Prior to 25 July 2002 the definition of the term charges was at ICTA88/S338 (2).

In respect of those periods (and subsequent to 1 April 1996) charges were:

• payments within ICTA88/S338 (3)(a), but not distributions,
• qualifying donations within ICTA88/S339,
• (from 1 April 2000 only) amounts allowed as charges on income under ICTA88/S587B (2)(a)(ii) (gifts of shares etc to charities).

Payments within ICTA88/S338 (3)(a) were:

• any annuity or other annual payment (otherwise than in respect of any of the company’s loan relationships), and
• any such other payments as mentioned in ICTA88/S348 (2) (any royalty or other sum paid in respect of the user of a patent),

but not including sums which were or, but for any exemption would be, chargeable under Schedule A.

Again, there was a proviso (ICTA88/S338 (2)) that no payment which was deductible in computing profits for CT purposes was a charge, and certain other qualifications applied.

For accounting periods ending before 1 April 1996 some interest was relievable under Case I and some as a charge. ICTA88/S338 (3)(b) treated as a charge short interest payable in the UK on an advance from:

• a bank carrying on a bona fide banking business in the UK, or
• a stock exchange member or discount house.

Most ‘short’ interest was however deductible in computing Case I income included in CT profits and so was not a charge on income.

If detailed guidance is required in respect of periods ended before 1 April 1996 refer to CT&VAT (Technical).

For accounting periods ending on or after 1 April 1996 interest is dealt with under the loan relationship regime introduced by FA96 and so was removed from the scope of charges. Consequential amendments were made to the rules governing the deduction of interest in computing income.