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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Income Tax: Deduction of tax: Income received net

Set off of income tax borne against corporation tax for an accounting period

Following the changes in FA01 and FA02 (see CTM35215) companies receive payments under deduction of tax less frequently. In such cases

  • where a UK company receives payments from which income tax has been deducted they are treated as income for CT purposes, and
  • the amount of IT deducted from the payment received is set off against the CT liability.

It follows that the set-off is made against the total CT liability for the whole accounting period, rather than just against CT attributable to the receipt.

If the net CT liability does not absorb the whole of the IT, the balance is repayable. For accounting periods ending on or after 1 October 1993, companies may claim repayment before the relevant assessment has been determined (see CTM92150). Before 1 October 1993 and the advent of CT Pay and File, the assessment had to be finally determined first.


A company has £20,000 IT deducted from taxed income received in the accounting period ended 31 December 2010. The CT computation will show:

CT chargeable: £19,000

less IT set-off (£19,000 out of the £20,000): £19,000

equals CT Payable: £0.

The £1,000 (£20,000 less £19,000 used) IT not so relieved is repaid to the company.