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HMRC internal manual

Company Taxation Manual

Income Tax: collection of tax on annual payments: relevant payments not returned


If HMRC believes the company has made a relevant payment which it has not included in a return or is dissatisfied with a return, the company is assessable to the best of an officer’s judgment.

For the purpose of computing interest on unpaid tax, the IT due on such an assessment is treated as payable when it would have been due if a correct return had been made.

It may be argued that making such assessments is pointless because:

  • the paying company has failed to deduct IT but the recipient company has been taxed on the gross interest received, or
  • an assessment on the paying company would merely generate a set-off for the recipient under Chapter 15 or against corporation tax.

However, while the two companies may be happy with the status quo, HMRC cannot sanction a departure from the statutory position.

The intention must, therefore, be to put the parties into the same position that they would have found themselves in had the paying company correctly accounted for IT. The first step is to make an assessment under Chapter 15 on the paying company. Once the IT is paid by that company, the corresponding set-off or repayment of IT can be made in arriving at the recipient company’s liabilities.

Any settlement of the effective over-payment from the payer to the recipient is then a matter between those parties. That overpayment is not a relevant payment as it is not paid under the agreement or arrangements under which the relevant payments are paid.

Where the obligation to deduct income tax arises by virtue of ITA07/S874 (1)(d), payment of yearly interest arising in the UK by any person to another person whose usual place of abode is outside the UK, see INTM413210 onwards, including the practice at INTM413230.  This is the UK’s mechanism for collecting what is usually referred to in international tax law as “withholding tax” and, provided that the recipient of the interest makes a certified application to HMRC’s treaty team fulfilling the relevant requirements, may be subject to benefits provided under Double Taxation Agreements.  The charge is under ITTOIA05/PART4/CHAPTER3, but may be removed or reduced under TIOPA10/PART2/CHAPTER1.