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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Income Tax: accounting for tax deducted from interest etc

Companies (including non resident companies trading from a branch or agency in the UK and local authorities) must similarly deduct tax by virtue of ITA07/S874 and other provisions from a range of payments listed at ITA07/S946, for example from

  • payments of yearly interest
  • annual payments
  • patent royalties
  • royalties etc to a person who lives abroad
  • the proceeds of a sale of patent rights paid to a non-UK resident
  • chargeable payments connected with exempt distributions (CTA10/S1086)
  • directions for deduction from payments to non-UK residents (ITA07/S944).

People receiving interest on their bank and building society accounts who do not expect to have to pay any tax can register to have their interest paid in full without deduction of tax.

Where tax is deducted, dividends paid by building societies on share accounts are treated as interest. The regime for deposit-takers and building societies is laid down in ITA07/CH2/PT15 supplemented by SI2008/2682.

These institutions are obliged to account for the amounts deducted under ITA07/CH15/PT15 using form CT61. COM23135+ explains how to handle CT61 cases using the SAFE system).

Entries on these forms giving aggregated figures of amounts paid or credited and the tax deducted for the return period are acceptable. Dates of payments need not be specified but separate figures should be shown for pre and post 5 April interest to reflect any change in the tax rate.

The figures in the returns may be reconciled against those in or with the accounts. Institutions should provide a reconciliation of the figures in the CT61 returns with the deductions claimed in the accounts for these items.

Building Societies, banks and other deposit takers may be audited periodically by HMRC to ensure that the scheme for deducting income tax from interest payments is being operated properly.