Part 15 U.K.Deduction of income tax at source

Modifications etc. (not altering text)

C1 Pt. 15 modified (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), ss. 551(4), 1329(1) (with Pts. 1, 2, Sch. 2 para. 78)

Chapter 3 U.K.Deduction from certain payments of yearly interest

Duty to deduct sums representing income tax U.K.

874 Duty to deduct from certain payments of yearly interest U.K.

(1) This section applies if a payment of yearly interest arising in the United Kingdom is made—

(a) by a company,

(b) by a local authority,

(c) by or on behalf of a partnership of which a company is a member, or

(d) by any person to another person whose usual place of abode is outside the United Kingdom.

(2) The person by or through whom the payment is made must, on making the payment, deduct from it a sum representing income tax on it at the [F1 basic rate] in force for the tax year in which it is made.

(3) But see—

(a) sections 875 to 888 as to circumstances in which the duty to deduct a sum under this section is disapplied, and

(b) Chapter 11 (payments between companies etc) for a further exception from the duty to deduct under this section.

(4) See also regulations made under section 17(3) of F(No.2)A 2005 (authorised investment funds)—

(a) for provision treating certain amounts shown in the distribution accounts of authorised investment funds as payments of yearly interest, and

(b) for exceptions from the duty to deduct under this section which would otherwise apply to such payments.

(5) For the purposes of subsection (1) the following are to be treated as payments of yearly interest—

(a) a payment of interest made by a registered industrial and provident society in respect of any mortgage, loan, loan stock or deposit, and

(b) any interest, dividend, bonus or other sum payable to a shareholder of such a society by reference to the amount of the shareholder's holding in the share capital of the society.

(6) For the purposes of subsection (1)—

(a) a payment made by a company in a fiduciary or representative capacity is not to be treated as a payment made by the company, and

(b) a payment made by a local authority in a fiduciary or representative capacity is not to be treated as a payment made by the local authority.

(7) For provision about the collection of income tax in respect of a payment from which a sum must be deducted under this section—

(a) see Chapter 15 if the person making the payment is a UK resident company, and

(b) otherwise see Chapter 16.

Textual Amendments

F1 Words in s. 874(2) substituted (21.7.2008 with effect in accordance with Sch. 1 para. 65 of the amending Act) by Finance Act 2008 (c. 9), Sch. 1 para. 26

Modifications etc. (not altering text)

C2 S. 874 applied by S.I. 2006/964, reg. 69Z23(2) (as inserted (6.4.2008) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2008 (S.I. 2008/705), regs. 1, 5)

Exceptions from duty to deduct U.K.

875 Interest paid by building societies U.K.

The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest made by a building society.

876 Interest paid by deposit-takers U.K.

(1) The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest in respect of which a deposit-taker has a duty to deduct under section 851.

(2) The duty to deduct a sum representing income tax under section 874 does not apply to a payment in respect of which a deposit-taker would have a duty to deduct under section 851 but for—

(a) regulations under section 852, or

(b) any of sections 858 to 861.

877 UK public revenue dividends U.K.

The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest in respect of a UK public revenue dividend.

878 Interest paid by banks U.K.

(1) The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest made by a bank if that payment is made in the ordinary course of its business.

(2) Section 991 (meaning of “bank”) applies for the purposes of this section.

879 Interest paid on advances from banks U.K.

(1) The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest on an advance from a bank if, at the time when the payment is made, the person beneficially entitled to the interest is within the charge to corporation tax as respects the interest.

(2) Section 991 (meaning of “bank”) applies for the purposes of this section.

(3) Subsection (1) applies to the European Investment Bank as if the words from “if” to the end were omitted.

(4) An order under subsection (2)(e) of section 991 designating an international organisation as a bank may provide that subsection (1) applies to the organisation with the modification mentioned in subsection (3).

880 Interest paid on advances from building societies U.K.

The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest on an advance from a building society.

881 National Savings Bank interest U.K.

The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest on deposits with the National Savings Bank.

882 Quoted Eurobond interest U.K.

The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest on a quoted Eurobond (see section 987).

883 Interest on loan to buy life annuity U.K.

The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest to which section 369 of ICTA applies (interest on loan to buy life annuity payable under deduction of tax).

884 Relevant foreign income U.K.

(1) The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest which is chargeable to income tax as relevant foreign income.

(2) For the meaning of “relevant foreign income”, see section 989.

885 Authorised persons dealing in financial instruments U.K.

(1) The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest made by a person authorised for the purposes of FISMA 2000 if—

(a) the person's business consists wholly or mainly of dealing in financial instruments as principal, and

(b) the payment is made by that person in the ordinary course of that business.

(2) For the meaning of “financial instrument”, see section 984.

886 Interest paid by recognised clearing houses etc U.K.

(1) The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest made by a recognised clearing house (“RCH”) or recognised investment exchange (“RIE”) if—

(a) the RCH or RIE is carrying on business as the provider of a central counterparty clearing service, and

(b) the interest is paid in the ordinary course of that business, on margin or other collateral deposited with it by users of the service.

(2) The duty to deduct a sum representing income tax under section 874 does not apply to interest treated by virtue of section 607 (treatment of price differences under repos)[F2 , or paragraph 5 of Schedule 13 to FA 2007 (relief for borrower for finance charges in case of debtor repos and debtor quasi-repos),] as paid by an RCH or RIE in respect of contracts made by it as the provider of a central counterparty clearing service.

(3) In this section—

• “central counterparty clearing service” means the service provided by an RCH or RIE to the parties to a transaction where there are contracts between each of the parties and the RCH or RIE (in place of, or as an alternative to, a contract directly between the parties), and

• “recognised clearing house” and “recognised investment exchange” have the same meaning as in FISMA 2000 (see section 285 of that Act).

Textual Amendments

F2 Words in s. 886(2) inserted (with effect in accordance with art. 3 of the commencing S.I.) by Finance Act 2007 (c. 11), s. 47(4), Sch. 14 para. 24; S.I. 2007/2483, art. 3

887 Industrial and provident society payments U.K.

(1) The duty to deduct a sum representing income tax under section 874 does not apply to either of the following payments if they are payable to a person whose usual place of abode is in the United Kingdom—

(a) a payment of interest made by a registered industrial and provident society in respect of any mortgage, loan, loan stock or deposit, or

(b) any interest, dividend, bonus or other sum payable to a shareholder of such a society by reference to the amount of the shareholder's holding in the share capital of the society.

(2) A registered industrial and provident society must, within 3 months after the end of each of its accounting periods, deliver to an officer of Revenue and Customs a return containing the information mentioned in subsection (3).

(3) That information is—

(a) the name and place of residence of every person to whom the society has, as a result of this section, made one or more payments in the period amounting in total to at least £15 without deducting a sum (or sums) representing income tax, and

(b) the amount so paid in the period to each of those persons.

(4) See section 486(7) of ICTA as to the consequences of not making a return as required by subsection (2).

(5) In this Chapter “registered industrial and provident society” means a society registered or treated as registered under the Industrial and Provident Societies Act 1965 (c. 12) or the Industrial and Provident Societies Act (Northern Ireland) 1969 (c. 24 (N.I.)).

(6) For the purposes of this section crediting interest (or amounts treated as interest) counts as paying it.

888 Statutory interest U.K.

The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest made by virtue of the contractual term implied by section 1(1) of the Late Payment of Commercial Debts (Interest) Act 1998 (c. 20) (statutory interest).