Should CT be paid on CT interest received in respect of an amended prior year CT600 which has generated a refund?
Should it be treated in the same way that bank interest received is?
Replies (8)
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Yes
Interest on overpaid corporation tax is taxable income. It will be taxable as non-trading interest income, i.e. like bank interest received. This didn't use to be the case, but it has been for many years now.
Yes, except that ...
... bank interest received isn't always treated as non-trading income
Ok
... bank interest received isn't always treated as non-trading income
Please give an example?
So...
Have a look at example 2 of item 3 at BIM40805
Do many business current accounts pay a material amount of interest? I take the point, but it's more like an exception to the norm. Not that it's actually likely to affect the CT liability anyway, whether trade or non-trade.
Strange though it may seem
I often come across companies with brought forward trading losses but with bank interest received. No, it's not material (and if it were material, I guess HMRC would argue that the balance generating that material interest went beyond normal trade requirements).
And it may well be the exception rather than the norm. I merely stated that interest received is not always a non-trade item, you asked for an example, and I gave you one ;)
Point is that by treating it as a trade receipt it avoids the need to tell clients to pay small amounts of tax when they still have losses available.
But it can apply to larger amounts
The rule about "trading interest" can have a material effect if the circumstances allow. I used to deal with an importer which held substantial bank deposits against its liabilities for stock purchases (which were longer-term debts because the overseas manufacturer wanted to gain a foothold into the UK market). The interest was clearly related to the trade and was part of the trading income of the company and so covered by losses brought forward. Of course that was then - now the banks pay little interest..