PART VIII TAXATION OF INCOME AND CHARGEABLE GAINS OF COMPANIES

Taxation of income

F1338B Charges on income: annuities or other annual payments

1

An annuity or other annual payment is a charge on income if—

a

the requirements specified in subsection (2) are met, and

b

it is not excluded from being a charge on income for the purposes of corporation tax—

i

by any of the following provisions of this section, or

ii

by any other provision of the Corporation Tax Acts.

2

The requirements are that the payment—

a

is made under a liability incurred for a valuable and sufficient consideration,

b

is not charged to capital,

c

is ultimately borne by the company, and

d

in the case of a company not resident in the United Kingdom, is incurred wholly and exclusively for the purposes of a trade which is or is to be carried on by it in the United Kingdom through a branch or agency.

3

An annuity or other annual payment made to a person not resident in the United Kingdom shall be treated as a charge on income only if the following conditions are met.

4

The conditions are that the company making the payment is resident in the United Kingdom and that either—

a

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

b

the person beneficially entitled to the income in respect of which the payment is made is a company that is not resident in the United Kingdom but which carries on a trade in the United Kingdom through a branch or agency and the payment falls to be brought into account in computing the chargeable profits (within the meaning given by section 11(2) of that company, or

c

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

5

An annuity or other annual payment is not a charge on income if—

a

it is payable in respect of the company’s loan relationships, or

b

it is a royalty to which Schedule 29 to the Finance Act 2002 applies (intangible fixed assets).

6

Nothing in this section prevents an annuity or other annual payment from being a charge on income if it is a qualifying donation (within the meaning of section 339).