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

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

Duty to deduct sums representing income taxU.K.

874Duty to deduct from certain payments of yearly interestU.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 [F1basic rate] in force for the tax year in which it is made.

(3)But see—

(a)sections 875 to [F2888E] 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 [F3registered 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.

[F4(5A)For the purposes of subsection (1) a payment of interest which is payable to an individual in respect of compensation is to be treated as a payment of yearly interest (irrespective of the period in respect of which the interest is paid).

(5B)But the Commissioners for Her Majesty's Revenue and Customs may make regulations which provide that subsection (5A) does not apply in the circumstances prescribed in the regulations.]

(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.

[F5(6A)In determining for the purposes of subsection (1) whether a payment of interest arises in the United Kingdom no account is to be taken of the location of any deed which records the obligation to pay the interest.]

(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.