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HMRC internal manual

Savings and Investment Manual

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HM Revenue & Customs
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Deduction of tax: collection arrangements: persons other than companies

Payments by other persons other than companies

Chapters 16 and 17 of Part 15 ITA07 deals with the collection of tax deducted by persons other than deposit-takers, building societies and companies.

Prior to the rewritten legislation in ITA07, tax deducted from interest or an annual payment under ICTA88/S348 or S349 (in the case of persons other than companies) was recovered either by being paid net out of a person’s taxed income, or by direct assessment under ICTA88/S350.

Under Tax Law Rewrite, the legislation on annual payments and deduction of tax has been simplified, and the concept of ‘charges’ has been replaced by an ordinary deduction from income (SAIM9040). Under ITA07, direct assessment is likely to be required in fewer cases (see SAIM9170), and in most cases collection will be via a person’s self assessment tax return. However, there will be no change in practice in cases where the tax is recovered via the self assessment since the tax calculation guide already treats the relief for charges as a deduction from income.

Collection through self- assessment

Please note that the collection through self-assessment described below does not relate to yearly interest. If an individual (or partnership of individuals) has to deduct tax from yearly interest, the direct mechanism still applies (for further detail see SAIM9170).

ITA07/S964 requires collection to be made through a person’s self assessment from payments made under

  • section 900 (annual payments made by traders)
  • section 901 (annual payments made by persons other than individuals)
  • section 903 (patent royalties)
  • section 942 (unauthorised unit trusts).

Collection through the self assessment return will, therefore, apply to tax deducted from

  • all annual payments made by individuals (these will be commercial payments), and patent royalties paid by individuals, and
  • most annual payments and patent royalties paid by other persons (apart from companies).

ITA07/S964 treats the income tax to be deducted as if it were income tax charged on the person and it must be taken into account by the person in making their self-assessment under TMA70/S9, in addition to the income tax liability on the income on which they are personally chargeable.

A taxpayer who claims the royalty or annual payment as a business expense should make a note of the amount paid in the ‘Any other information’ box (box 19 at the end of the Tax Return, or box 102 on the Self-employment (full) pages).