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HMRC internal manual

Company Taxation Manual

Corporation Tax: introduction: IT deduction from certain payments

ICTA88/S7 (1) said that no payment made by a company resident in the UK was to be treated for any of the purposes of the Taxes

Acts as paid out of profits or gains brought into charge to IT. Following Tax Law Rewrite, IT and CT are separate codes. ICTA88/S349 applied to annual payments etc not paid out of profits or gains brought into charge to IT, and so caught such payments made by a company resident in the UK. ITA07/S977 now provides that the tax collection machinery on payments made is not affected by the fact that the recipient is a company not chargeable to income tax.

Before 1 April 2001 where a payment made by a UK resident company:

  • was within ICTA88/S349, and
  • was not a distribution

the company had to:

  • deduct IT from the payment, and
  • account for that tax in accordance with the provisions of ICTA88/SCH16.

However there were special provisions in ICTA88/S247 (4) to enable certain payments between members of a group of companies to be made in full.

Payments made on or after 1 April 2001 are governed by ITA07/Part 15, see in particular ITA07/S930 (formerly ICTA88/S349A - S349D). From that date, companies no longer had to deduct IT from annuities, annual payments etc where the recipient was another company within the charge to CT.

From 1 October 2002, companies no longer have to deduct tax on such payments to a much wider range of recipients. For full details see CTM35200 onwards.