Schedular system of taxation

The schedular system of taxation is the system of how the charge to United Kingdom corporation tax is applied. It also applied to United Kingdom income tax before legislation was rewritten by the Tax Law Rewrite Project. Similar systems apply in other jurisdictions that are or were closely related to the United Kingdom, such as Ireland and Jersey.

Under the source rule, tax is levied on a source of income or gain only if there is a specific provision taxing that income or gain. The levies to tax on income were original set out in Schedules to the Income Tax Act. In the case of United Kingdom corporation tax, they remain for companies charged to that tax, and in the case of United Kingdom income tax, many, but not all remain.

In the United Kingdom the source rule applies. This means that something is taxed only if there is a specific provision bringing it within the charge to tax. Accordingly, profits are only charged to corporation tax if they fall within one of the following, and are not otherwise exempted by an explicit provision of the Taxes Acts:

Notes:

Income tax was levied under 5 schedules - income not falling within those schedules was not taxed. The schedules were:

Later a sixth Schedule, Schedule F (tax on UK dividend income) was added.

The Schedules under which tax is levied have changed. Schedule B was abolished in 1988, Schedule C in 1996 and Schedule E in 2003. For income tax purposes, the remaining Schedules were abolished in 2005. Schedules A, D and F remain for corporation tax purposes.

Schedule D is itself divided into a number of cases:

Notes:

The computations of income and taxable chargeable gains include deductions for direct expenses. However, not all sources of income have direct expenses (particularly those falling within Cases III and VI of Schedule D, foreign dividend income falling within Case V and income falling within Schedule F). Also a company may incur expenses managing a subsidiary which does not tend to pay dividend income to it.

Relief is therefore given for management expenses incurred by a company with investment business (before 1 April 2003 investment companies), and for certain management expenses of a life assurance company taxed on the I minus E basis. Relief is also given as a deduction from profits chargeable to corporation tax to certain payments to charities, certain royalty payments made by non-traders and some manufactured overseas dividends.

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