Corporation Tax Act 2009 section 851

Delayed payment of royalty by company to related party

Section 851 sets out a timing rule that restricts when a company can claim a tax deduction for a royalty payable to a related party, where that royalty has not been paid promptly.

• The rule applies where a royalty is payable by a company to a related party and remains unpaid more than 12 months after the end of the accounting period in which the expense was recognised
• It also requires that the recipient has not yet brought the full amount of the royalty into account as taxable income under the intangible fixed assets rules
• Where both conditions are met, the paying company may only deduct the royalty for tax purposes at the point it is actually paid, rather than when it is recognised in the accounts
• The purpose of the rule is to achieve approximate symmetry so that the payer does not obtain tax relief significantly earlier than the recipient is taxed on the income