Chapter 7: Annual payments not otherwise charged
Overview
2478.The Chapter sets out the charge to corporation tax on income on any annual payments that are not charged to tax by any other provision of this Act or any other legislation. It is based on the part of section 18 Schedule D Case III (b) of ICTA which deals with annual payments and the part of section 18 Schedule D Case V of ICTA which deals with foreign annual payments. The corresponding rules for income tax are in Chapter 7 of Part 5 of ITTOIA.
2479.Annuity payments made under purchased life annuities and distributions from unauthorised unit trusts (which in the source legislation are treated as annual payments) are generally regarded as investment income. A company which is the recipient of a payment under a purchased life annuity contract is deemed to be a party to a creditor relationship (see sections 561 and 562 of this Act). The application of the charge to corporation tax on income for distributions from unauthorised unit trusts is in section 972 of this Act. As the application of the charge to corporation tax on income for annual payments in this Chapter takes effect only if an amount is not otherwise charged to corporation tax, there is no overlap between the various provisions.
2480.The phrase “annual payment” is retained but is not defined in the Act or in the source legislation. Instead it derives its meaning from an extensive body of case law. That case law illustrates that the phrase has a meaning for tax purposes far different from its natural one. Replacing that phrase would risk breaking the link to case law without making the law any clearer or easier to understand.
Section 976: Overview of Chapter
2481.This section provides an overview of the Chapter and signposts other relevant provisions. It is new.
Section 977: Charge to tax on annual payments not otherwise charged
2482.This section applies the charge to corporation tax on income to annual payments not charged elsewhere. It is based on sections 9 and 18 of ICTA. The corresponding rule for income tax is in section 683 of ITTOIA.
2483.Subsection (1) applies the charge to corporation tax on income to residual annual payments. The charge to tax in the source legislation is in respect of “any annuity or other annual payment”. The reference to “any annuity or other” is omitted because most annuities are charged to tax not under this Chapter but under Part 5 (loan relationships). Including a reference to annuities might therefore be misleading.
2484.The words “whether inside or outside the United Kingdom” in Schedule D Case III (b) are also omitted. The place of payment is only one of a number of factors derived from case law which may be taken into account in determining the source of annual payments.
2485.The source legislation excludes “any payment chargeable under Schedule A”. It is not necessary to rewrite this as sections 209, 270, 277 and 280 apply the charge to corporation tax on income to property income.
2486.Subsection (2) ensures that any exemption resulting from the application of the charge to corporation tax on income to other income is not reversed by the application of that charge under this Chapter.
2487.Subsection (3) rewrites “or whether annually or at shorter or longer intervals”.
Section 978: Exemption for payments by persons liable to pool betting duty
2488.This section gives an exemption from corporation tax for annual payments made by persons liable to pool betting duty. It is based on section 126 of FA 1990 and section 121 of FA 1991. The corresponding rule for income tax is in section 748 of ITTOIA.
2489.The exemption applies to payments made in consequence of a reduction in pool betting duty, whenever that reduction is made (see subsection (2)). Subsection (2) combines the conditions in FA 1990 and FA 1991. Although the source legislation is restricted to the 1990 and 1991 reductions in pool betting duty, the subsection applies to payments made “in consequence of” any reduction in the duty. See Change 36 in Annex 1.
2490.Subsection (3) sets out a further condition which needs to be satisfied. The subsection does not specify that payments in consequence of the 1990 reduction in pool betting duty must be paid for football safety and comfort (see section 126(3) of FA 1990) or that payments in consequence of the 1991 reduction must be paid to the Foundation for Sport and the Arts (see section 121(3) of FA 1991). Instead the subsection applies to a payment in consequence of any reduction in pool betting duty for either purpose. See Change 35 in Annex 1.
