Income and Corporation Taxes Act 1988

338 Allowance of charges on income and capital. U.K.

(1) M1 Subject to sections 339, 494 and 787, in computing the corporation tax chargeable for any accounting period of a company any charges on income paid by the company in the accounting period, so far as paid out of the company’s profits brought into charge to corporation tax, shall be allowed as deductions against the total profits for the period as reduced by any other relief from tax, other than group relief.

(2) M2 Subject to the following subsections, [F1 to section 339] and to any other express exceptions, “charges on income” means for the purposes of corporation tax—

(a) payments of any description mentioned in subsection (3) below, not being dividends or other distributions of the company; and

(b) payments which are qualifying donations (within the meaning of section 339);

but no payment which is deductible in computing profits or any description of profits for purposes of corporation tax [F2 nor any annuity or other annual payment which (without being so deductible) is paid wholly or partly as mentioned in section 337(2A)] shall be treated as a charge on income.

(3) M3 Subject to subsections (4) to (6) below, the payments referred to in subsection (2)(a) above are—

(a) [F3 any annuity or annual payment payable otherwise than in respect of any of the company’s loan relationships] and any such other payments as are mentioned in section 348(2) but not including sums which are or, but for any exemption would be, chargeable under Schedule A;F4 . . .

F4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) No such payment as is mentioned in subsection (3)(a) above made by a company to a person not resident in the United Kingdom shall be treated as a charge on income unless the company is so resident and either—

(a) M4 the company deducts income tax from the payment in accordance with section 349, and accounts under Schedule 16 for the tax so deducted, or

(b) F5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) F5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d) the payment is one payable out of income brought into charge to tax under Case IV or V of Schedule D.

(5) M5 No such payment made by a company as is mentioned in subsection (3) above shall be treated as a charge on income if—

(a) the payment F6 . . . , is charged to capital or the payment is not ultimately borne by the company; or

(b) the payment is not made under a liability incurred for a valuable and sufficient consideration (and, in the case of a company not resident in the United Kingdom, incurred wholly and exclusively for the purposes of a trade [F7 which is or is to be] carried on by it in the United Kingdom through a branch or agency), and is not a covenanted donation to charity (within the meaning of section 339).

(6) F8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) M6 Any payment to which section 125(1) applies shall not be charge on income for the purposes of corporation tax.

Textual Amendments

F1 Words in s. 338(2) substituted (in relation to accounting periods beginning on or after 19.3.1991) by virtue of Finance Act 1991 (c. 31, SIF 63:1), s. 71(2)(3)

F2 Words in s. 338(2) inserted (with effect in accordance with s. 165(4)(5) of the amending Act) by Finance Act 1996 (c.8), s. 165(2)

F3 Words in s. 338(3)(a) substituted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 16(2)(a) (with Sch. 15)

F4 S. 338(3)(b) (together with word preceding and words following) repealed (with effect in accordance with s. 105(1) of the repealing Act) by virtue of Finance Act 1996 (c. 8), Sch. 14 para. 16(2)(b), Sch. 41 Pt. 5(3), Note (with Sch. 15)

F5 S. 338(4)(b)(c) repealed (with effect in accordance with s. 105(1) of the repealing Act) by Finance Act 1996 (c. 8), Sch. 14 para. 16(3), Sch. 41 Pt. 5(3), Note (with Sch. 15)

F6 Words in s. 338(5)(a) repealed (with effect in accordance with s. 105(1) of the repealing Act) by Finance Act 1996 (c. 8), Sch. 14 para. 16(4), Sch. 41 Pt. 5(3), Note (with Sch. 15)

F7 Words in s. 338(5)(b) inserted (27.7.1993 with effect as mentioned in s. 109(4) of the amending Act) by 1993 c. 34, s. 109(3)(4)

F8 S. 338(6) repealed (with effect in accordance with s. 105(1) of the repealing Act) by Finance Act 1996 (c. 8), Sch. 14 para. 16(5), Sch. 41 Pt. 5(3), Note (with Sch. 15)

Modifications etc. (not altering text)

C1 See 1988 s.494—Oil Taxation Acts—restriction of relief against income from oil extraction activities or oil rights.

C2 See—1981 s.127—Oil Taxation Acts—deduction of supplementary petroleum duty.1988 s.500—Oil Taxation Acts—deduction of petroleum revenue tax in computing income.Housing Subsidies Act 1967 (c.29) ss.24(2)and 26(4) (reproduced in Part II Vol.5)—approved housing association not entitled to relief for interest subsidised under that Act.

C3 See 1989 s.116—certain interest on Eurobonds to Netherlands Antilles subsidiaries made on or after 1April 1989.

Marginal Citations

M1 Source-1970 s.248(1); 1986 s.29

M2 Source-1970 s.248(2); 1986 s.29

M3 Source-1970 s.248(3); 1973 s.54(1)(a); 1981 s.38(1)

M4 Source-1970 s.248(4); 1972 Sch.24 20

M5 Source-1970 s.248(5); 1981 s.38(2)

M6 Source-1977 s.48(1)