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Anyone seen this before?

I have a corporate client who in past years has received bank interest net of 20% tax.  I'm not sure why this happened as usually companies receive bank interest gross.

However, after asking the bank to start paying the interest gross they have now refunded £4k of tax deducted over the past few years. I do not understand how they can do this as surely the tax is question should have been paid to HMRC by now? 

My main problem is how do we show the position on the CT600 as there does not appear to be a box for this scenario and putting a negative figure in the box for tax suffered results in it failing the online submission tests.

My conclusion is to submit the CT600 online ignoring the £4k of tax and to send in a manual amendment to the CT600 to take into account the £4k tax suffered but I would be interested to hear if anyone else has differing views?

Steve Coates

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By Anonymous
18th May 2010 11:08

CT600

I think the question you should ask is how the interest received in prior years net of tax was reported on the CT600's at the time.  If this was reported as gross then the company have suffered tax twice once by the bank and once via the CT600 and the £4K is a refund of a double tax charge.

If this is the case then good luck in explaining it HMRC, I think it may take quite a few letters and telephone calls.

If the interest was reported on prior CT600's as net interest ie an adjustment was made to gross up and show tax deducted on the CT600's then the bank refund is in effect other income and is taxable.  It is just the bank refunding an error. 

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18th May 2010 14:30

Is it me?

Maybe I'm being slow but it seems to me that, as the previous answer says, if the company has paid tax on the gross amount via their CT600 each year - with no credit for tax deducted at source (as it shouldn't have been being deducted and they were trying to get it back) then this is simply a refund of double tax. I don't see what the probnlem would be with HMRC as it has already been taxed even though not received. It is, essentially, interest credited and taxed but not handed over until now.

If the interest has been declared as taxed at source and the tax paid has been treated as a credit, then strictly this refund should relate to the year of deduction and the relevant tax for each year should be adjusted - unless this is not really a refund of tax (given that the tax will have been paid over to HMRC) but a compensation payment by the bank for deducting tax when they shouldn't have.

Cathy

[email protected]

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18th May 2010 15:56

Further info

Thanks for the replies.  In the past the interest was treated as net and hence the tax suffered was deducted from the overal CT liability for the approrpriate year.

The correspondence from the bank clearly identifies the £4k payment as tax rather than any form of compensation or other income.

I agree that technically we should go back and adjust each prior year but I am trying to avoid that as it would involve alot of files coming out of archive - indeed it may go back more than 6 years.

I do not see how treating it as other income can be right as we would then only be paying 21% tax on the £4k received rather than paying back the whole of the £4k of tax refunded.

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18th May 2010 16:54

Back to plan A

Then I think you are right - the pragmatic approach is to deal with it as 'negative' tax in the year of receipt to avoid having to redo lots of returns. As the online submission doesn't work, I would submit online as usual and write to HMRC suggesting it is added to this year's tax bill given the result is the same - I assume the bank didn't pay interest to the company so an equitable solution would be for it to be treated as tax repaid in the last year. I don't suppose your software will let you fudge the tax computation to include it as a liability for this year with a suitable note?

I quite agree that including it as income doesn't give the right result.

Cathy

[email protected]

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