Withholding tax on interest payment

Under the existing rules, which apply generally to interest other than that paid by banks or building societies on deposits:

  • Where the borrower is a company who pays interest due to an individual, the borrower is required to deduct income tax at source from the interest for payment to HMRC, and pay the interest to the lender net of tax.
  • Where the borrower is a company who pays interest due to another UK company, the borrower is not required to deduct tax at source, and interest may be paid gross.
  • Where the borrower is an individual (including a sole trader) who pays interest to either an individual or a company resident in the UK, the borrower is not required to tax deduct at source and interest may be paid gross. ·
  • However where the interest is due to a lender who is resident outside the UK, the borrower is required to deduct income tax at source from the interest for payment to HMRC, and to pay the interest to the lender net of tax, regardless of the identity of the borrower.

Primary legislation:

  • Income Tax Act 2007 section 874.
  • Rate of deduction – Basic rate : presently 20%
  • DTAA: Where DTAA exemption exists. HMRC prior permission required to pay gross.
  • Main guidance: HMRC Manual: CTM35000 Contains detailed provisions for deducting tax and depositing it with HMRC
  • Form to be submitted: CT61

 

Click here for source

 

 

UK resident – selling a overseas property

A friend asked me how capital gain on a overseas property is calculated. I thought I will give an example enumerated by HMRC in its guidance.

In 1983, Ms A who is both resident and domiciled in the United Kingdom buys a property overseas for foreign currency, which she acquired for £50,000 on the date of purchase of the property (that is, there was no gain or loss on the acquisition and disposal of the currency). In 1986-87 she sells the property for 3,000,000 units of the foreign currency at a time when the exchange rate is 40 to £1. The sterling equivalent of the currency so obtained is therefore £75,000.

The chargeable gain (subject to expenses) is £75,000 less £50,000 equals £25,000

Reference: HMRC Manuals – CG78408

Group relief : Capital allowance

During the expansion phase of a business. Clients invest a lot of money which is eligible for capital allowance but the company under which investment is made may not have sufficient profits to absorb it.

If a client has other profitable companies within the group. Current year’s capital allowance can be transferred to the profitable companies to reduce the tax over all group tax bill.
more information:

http://www.accaglobal.com/uk/en/technical-activities/technical-resources-search/2011/september/company-losses.html

 

Corporation tax : Shorten tax year

If one wishes to shorten the Tax year before the end of the tax year as per HMRC records.
It can be only done by calling HMRC.

It takes 15 working days to be completed at HMRC end.

Please note in case you are closing the company, please specifically ask the HMRC person you are speaking on the telephone to make the company dormant after the shortened period end date, otherwise HMRC will expect tax return for period after this date.

Also remember to change the `accounting reference date` in Companies House records.