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HMRC internal manual

Partnership Manual

Indirect, capital and transfer taxes and other tax obligations: deduction of Income Tax at source

Part 15 of ITA 2007 imposes a duty to deduct sums representing income tax from certain payments, such as yearly interest. Although partnerships are usually regarded as transparent, this may not be the case where it is indicated otherwise within the Taxes Acts, either expressly or by implication (as per ITTOA 2005/S848).

For deduction of income tax purposes, a partnership is not treated as being transparent; the partnership itself is deemed to be the “person” to whom the legislation applies.

This means that the collection rules at Chapter 16 of Part 15 ITA 2007 apply to the partnership. The partners need not report the tax deducted at source separately. It also means that, when a person makes a payment (that is within the scope of ITA 2007/Part 15) to a partnership, the obligation to deduct tax arises on the whole of the payment. It is not necessary to carve up the payment between partners and consider whether an obligation arises for each partner separately.

You should be aware of the ‘exception rules’ at ITA 2007/S930 onwards. Broadly, the rules allow payments to be made between companies within the charge to CT without tax being deducted. Payments made by ‘qualifying partnerships’, i.e. those with at least one company member are within the scope of the exceptions. Payments to certain types of partnership, mainly those with only company members, fall within the exceptions.