Can a company recover a payment made under a Chapter 7 notice?

Yes. Under section 980 of the Corporation Tax Act 2010, a company that has paid an amount because it received a Chapter 7 notice has a statutory right to recover that amount from the taxpayer company. This ensures the paying company is not left out of pocket and can seek reimbursement directly from the company whose tax liability gave rise to the notice.

Are payments made under Chapter 7 notices tax-deductible?

No. Any payment made in response to a Chapter 7 notice is not allowable as a deduction in computing income, profits or losses for any tax purpose. This rule applies broadly across all tax computations, meaning neither the paying company nor the taxpayer company can claim any tax relief or offset in respect of such payments.

What happens when the taxpayer company reimburses the paying company?

When the taxpayer company reimburses the paying company, that reimbursement does not give rise to any deductible amount for tax purposes. While the paying company has a statutory right to recover the sum, neither the original payment nor its reimbursement can reduce taxable income, profits or losses for either party under United Kingdom tax law.

What is the purpose of section 980 of the Corporation Tax Act 2010?

Section 980 addresses two practical consequences arising when a company makes a payment following a Chapter 7 notice. It grants the paying company a statutory right of recovery against the taxpayer company and ensures that such payments cannot be deducted in any tax computation, preventing any tax benefit from arising from these payments.

Corporation Tax Act 2010 section 980

Chapter 7: supplementary

Section 980 deals with supplementary provisions concerning payments made under Chapter 7 notices, covering the right to recover such payments and their tax treatment.

A company that has paid an amount under a Chapter 7 notice may recover that amount from the taxpayer company.
Payments made under Chapter 7 notices cannot be deducted when calculating income, profits or losses for any tax purpose.
The right of recovery lies with the company that made the payment, and the obligation falls on the taxpayer company.
The non-deductibility rule applies broadly across all tax computations, ensuring no tax benefit arises from these payments.

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