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HMRC internal manual

Company Taxation Manual

Income Tax: Deduction of tax: Payments made before 1 April 2001

CTM35210 describes the rules governing deduction of IT from certain payments of interest and annual payments before changes made by FA01/S84 and FA02/S94. For payments made on or after 1 April 2001 see CTM35215.

When a UK resident company made any payment within ICTA88/S349 (now ITA07/S874):

  • the payment was treated as not paid out of profits or gains brought into charge to IT (ICTA88/S7 (1)); and
  • the provisions of the Taxes Acts relating to the deduction of IT from annual payments and so on, applied, except that the method for accounting was provided by the ICTA88/SCH16 machinery (now ITA07/PART15/CHAPTER15 - see CTM35100 onwards).

Accordingly a UK company had to deduct and account for IT in respect of payments to which ICTA88/S7 (1) applied.

This was the case even if the recipient was a company not chargeable to IT in respect of the payment.

Exemptions from deducting tax on certain payments

The exemption categories are now listed at ITA07/S875 to S888.

For example, interest paid by building societies, deposit takers and banks was likely, if paid on financial products, to be within the Tax Deduction Scheme for Interest (TDSI) and no accounting would then be required under the ICTA88/SCH16 machinery.