My client is a company director with (following the rush to crystalise taper relief) a large director's loan account.
He wants the company to pay him interest and i have advised that the company will need to deduct tax at 20% and return a CT61 each quarter.
His mate (down the pub) says he gets interest without deduction from his company!
ARRRRGH.
Can someone confirm that i am correct please?
Many thanks
Stormrider
Replies (3)
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Correct
Under s.349(2) ICTA 1988, income tax is deductible from yearly interest, as defined in ss.369-381 ITTOIA 2005, paid by a company to an individual and the company is required under ICTA Sch.16 to make a return (on form CT61) for each calendar quarter and pay over the income tax within 14 days of the end of the quarter.
Some people used to take the view that because s.349(2) refers to "yearly interest", it did not apply to interest not paid on an annual basis, but the amendment to s.349(2) to cover all interest assessed under ITTOIA removed any doubt. There is no argument that the director is not liable to income tax on the interest he will receive and hence, there can be no argument that the company is not required to deduct 20% tax under the CT61 procedures.
So what...
...I can hear many people saying. If the director puts it on his tax return, tax will be paid. However, HMRC don't view it like that. They will be out of pocket on the cash flow.
Euan is perfectly correct. I would also add that I have seen people try to argue that, because a loan is repayable on demand it is not annual interest. I have seen people trying to say that a loan for 364 days is not annual interest even if it is renewed continuously. Both statements are incorrect. It is annual interest.