Home > Corporation Tax > Tax Charges on Income

Tax Charges on Income

By: J.A.J Aaronson - Updated: 5 Oct 2012 | comments*Discuss
 
Charges Income Corporation Tax Ct

Corporation tax is levied on the adjusted profits of public companies and incorporated associations. This can obviously account for a sizeable proportion of an organisation’s income. However, there are a number of exemptions and reliefs available, which can lessen an organisation’s tax burdens.

One such relief comes in the form of ‘charges on income’. This term describes payments that a company makes that can, for one reason or another, be acceptably deducted from profits or capital gains accrued during an accounting period. There are a number of different instances in which payments could be counted as charges on income, but the most common set of circumstances involves payments made to charity.

Gift Aid

Several years ago the Chancellor introduced ‘Gift Aid’, which is a tax-efficient method of charitable giving that offers benefits to both organisations and individuals. In the case of companies that pay Corporation Tax, Gift Aid donations can be counted as ‘non-trade’ charges on income and can therefore be deducted from total profits and capital gains. By definition, Gift Aid donations are paid from the company’s gross income and, for accounting purposes, they can simply be subtracted from the sum accrued during the relevant accounting period.

Annuities and Annual Payments

There are several other instances in which payments can be counted as charges on income. Most importantly, some annuities and other annual payments can be counted as such when they fulfil a number of criteria. These criteria are, however, both complex and strict. According to the Income and Corporation Taxes Act (1998), any annual payments (including annuities) paid in respect of an insurance arrangement or payable by an insurance company will automatically not qualify as charges on income.

However, other annuities might; according to the act, the company must have received “valuable and sufficient consideration…in exchange for the liability to make annual payments”. In this context "consideration" means anything of value, be that a service or goods.

Share Gifts

Finally, there are some other gifts that are allowable as charges on income. These are defined in Section 587 of the Income and Corporation Taxes Act, and are basically limited to gifts of shares in a public limited company to a charitable organisation. The rules surrounding these gifts can be complex, however, and so it is advisable to seek a professional second opinion before embarking on any such process for tax purposes.

There are a number of idiosyncrasies concerning the way in which charges on income must be accounted for. In the first instance, it is important to remember that these charges are deducted from the company’s profits at the time that they are paid, rather than being left to accrue until the end of an accounting period (although, in practical terms, this is little more than a semantic difference).

Essentially the calculation is a straightforward one; any net capital gains, as well as profits such as rental income, are added to the adjusted profit for the accounting period. From this, any charges on income are deducted, leaving the company with their final taxable figure. This is known as profits chargeable to corporation tax, or PCTCT.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • Gem
    Re: How Will My Second Job Be Taxed?
    If your second job is bank do you on my pay more tax when you have done shifts in this second job or every month even if not…
    16 August 2018
  • TheTaxGuide
    Re: How Will My Second Job Be Taxed?
    Dannyboi - Your Question:I have a full time job but don't earn enough to be taxed, I've started a second job just for the…
    13 August 2018
  • Dannyboi
    Re: How Will My Second Job Be Taxed?
    I have a full time job but don't earn enough to be taxed, I've started a second job just for the summer holidays so will I…
    10 August 2018
  • TheTaxGuide
    Re: How Will My Second Job Be Taxed?
    essavivya - Your Question:Hi, I'm trying to find out if it would be worth taking a second job in the run up to Christmas…
    10 August 2018
  • TheTaxGuide
    Re: How Will My Second Job Be Taxed?
    Jak - Your Question:Hi I have offer of get extra job for two weeks and actually it will be my additional job for this time as…
    9 August 2018
  • Jak
    Re: How Will My Second Job Be Taxed?
    Hi i have offer of get extra job for two weeks and actually it will be my additional job for this time as I still have my…
    8 August 2018
  • essavivya
    Re: How Will My Second Job Be Taxed?
    Hi, i'm trying to find out if it would be worth taking a second job in the run up to Christmas (yep, i know it's only…
    7 August 2018
  • gosia96
    Re: How Will My Second Job Be Taxed?
    HI, I started working from 1. 07.2018 its my first job from april 2018. Now im working on full- time job and i have an…
    1 August 2018
  • TheTaxGuide
    Re: How Will My Second Job Be Taxed?
    AT - Your Question:Hi there, I am currently trying to decide between two job options and am wondering which one will be…
    26 July 2018
  • Marianne
    Re: How Will My Second Job Be Taxed?
    I will have 2 jobs both part time. One will be 28 hours and the second 16. None of them reach 11850. But together they reach…
    22 July 2018