Revenue Note for Guidance
Certain payments made (for example, annuities or other annual payments) by a resident company must be paid under deduction of income tax at the standard rate. Where a resident company receives an annual payment from which income tax has been deducted, the tax deducted from the payment is allowed as a credit against the company’s corporation tax liability for the accounting period in which that payment is taken into account.
(1) Certain payments (for example, annuities or other annual payments) made by a resident company are not treated as paid out of profits or gains brought into charge to income tax and therefore section 237 (which entitles the payer to deduct and retain income tax on the payment) cannot apply. Accordingly, section 238 applies to such payments and under that section the company is obliged to deduct tax at the standard rate of income tax and account to the Revenue for the tax so deducted. The rules in section 239 apply for accounting to the Revenue for income tax deducted from such payments.
The right or obligation to deduct income tax from any payment is not affected by the fact that the recipient is a company not chargeable to income tax in respect of the payment.
(2) Where a resident company receives a payment on which it bears income tax by deduction, the income tax is to be set against any corporation tax assessed on the company for the accounting period in which that payment is taken into account for corporation tax purposes. Accordingly, the company, unless wholly exempt from corporation tax, will not be able to claim repayment of income tax until the corporation tax liability for the accounting period has been determined. There is, however, a separate provision in section 239(7) which enables a company which receives in any accounting period payments which have borne income tax to claim to have that tax set against the income tax which it would have to deduct and pay to the Revenue on payments it makes in the accounting period.
(3) The section also applies to payments received by a person acting on behalf of or in trust for a company, but not to payments received by the company as agent or trustee for another person.
Relevant Date: Finance Act 2019