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Chapter CTM09005

Document Cited authorities 1 Cited in Related
Vincent
Published date16 April 2016
Record NumberCTM09005
Historical note

Charitable donations relief is what mostly remains of what was once a highly important concept known as ‘charges on income’. This was developed early in the scheme of Income Tax as a means of securing revenue by using the deduction at source and ‘alienation’ principles. Where income represented pure income profit in the hands of a recipient, the payer deducted and retained tax and the recipient suffered tax by deduction. In order to ensure the tax reached the exchequer, different rules applied depending on whether or not the payment was made out of profits brought into the charge to Income Tax on the payer. See ICTA88/S348 and S349. Of particular significance was that annual interest fell within the scheme, which also covered annual payments such as annuities and royalties.

The ‘charges on income’ scheme lasted in substance for Income Tax until the Tax Law Rewrite exercise, but it never applied in the form described above to CT.

When CT was introduced by FA65, the aim was to create a scheme for a comprehensive new tax on companies, which had formerly paid Income Tax and Profits Tax. In place of the alienation/deduction at source approach, the company received relief for ‘allowable charges’ as deductions against total profits. Any charges that would otherwise have been allowable in the trading income calculation were added back to trading profits and were then allowed against total profits. FA65 reproduced some of the alienation rules, however. No relief was given where the payment was charged to capital, or it was not ultimately borne by the company, since in these cases the payment was not ‘made out of profits brought into the charge to tax’. There was a requirement for the payment to be for valuable and sufficient consideration, but with an exception for charitable covenants. Surplus charges could be carried forward, but only if laid out wholly and exclusively for trade purposes (ICTA88/S387). See CTM09100.

For CT the ‘loan relationships’ legislation introduced by FA96, now at CTA09/PART5, modernised a scheme for taxing and relieving interest payments which was described at the time as defying precise summary and one that...

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