PART VIII TAXATION OF INCOME AND CHARGEABLE GAINS OF COMPANIES

Taxation of income

338 Allowance of charges on income and capital.

(1)

M1Subject 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)

M2Subject to the following subsections, F1to section 339 and to any other express exceptions, “charges on income” means for the purposes of corporation tax—

F2(za)

amounts allowed as charges on income under section 587B(2)(a)(ii);

(a)

payments of any description mentioned in subsection (3) below, not being dividends or other distributions of the company F3or payments falling within paragraph (b) below ; 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 F4nor 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)

M3Subject to subsections (4) to (6) below, the payments referred to in subsection (2)(a) above are—

(a)

F5any 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;F6. . .

F6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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)

M4the company deducts income tax from the payment in accordance with section 349, and accounts under Schedule 16 for the tax so deducted, or

(b)

F7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)

F7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d)

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

(5)

M5No 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 F8. . . , 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 F9which is or is to be carried on by it in the United Kingdom through a branch or agency), and is not F10a qualifying donation(within the meaning of section 339).

(6)

F11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7)

M6Any payment to which section 125(1) applies shall not be charge on income for the purposes of corporation tax.