Small ltd company client is currently being paid net interest by Natwest. I have asked the director to tell the bank to pay gross instead.
My client phoned Natwest and has said " they always pay interest net on business accounts and then it is up to us to account for that when we complete our tax returns"
Do they have the right to dictate this?
Are we right to insist they pay it gross?
Thanks in advance!
Replies (12)
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Ltd Company
As far as I am aware they should not deduct interest from a limited company bank account and I haven't seen this being done. Something you might want to check is that the client has actually opened a limited company bank account and not just an ordinary business account.
IIRC, a deposit is not a "relevant investment" if the interest thereon is payable to a corporate body (including an LLP with a corporate member) by a "Financial Institution".
If so, the interest should be paid Gross.
Definitely not a relevant investment unless client account etc.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...
When is a deposit not a relevant investment?
2.2 If the interest on a deposit belongs to anyone other than those in the list at paragraph 2.1 it is not a relevant investment. Some examples are shown below and a fuller list is given at Appendix 1
- companies (including joint accounts where at least one party to the account is a company),
The person on the phone at NatWets is probably saying what they think should be the answer without actually knowing.
There is no income tax on payments of interest by a bank if the recipient is within the charge to corporation tax (s349 ICTA, s879(1) ITTOIA).
This must be a Non-Limited account
I have many clients with NatWest and RBS (as do we all).
Sole trade and partnership accounts have tax deducted by default which is then claimed back through self assessment.
Limited company accounts do not have tax deducted as they fall under the CTA.
If NatWest are stating that they "always pay interest net on business accounts" they mean, they always pay interest net on business accounts which fall under the remit of SA.
As a result, I would be (almost) certain that the account is not a Limited Company Account and that your client will now have to go through the routine of applying for one.
If your client doesn't know which type of account it is, they need to check with NatWest. However, if they say the accounts took a week or so to open, it's 90% certain it was not a limited company account!
There is always the chance the bank got it wrong but, hate it as I do, I may have to side with the bank on this. After all, the chances of them setting up a non-limited account by mistake, whilst possible, are unlikely. To check, ask for a copy of the application form and mandate to be sent to your client - by memory, the limited company mandate and application form is not the same as the business account application and mandate.
Just one other thing... banks do not like limited companies running through non-limited bank accounts so, don't push it! They may well close the existing account!
Check The Bank Statement
Incidentally, I have just checked a couple of copy bank statements from NatWest.
All of the limited companies (even the ones with trading names) contained the company name and limited/ ltd in the account name. I know trading names are sometimes used on cheque books and paying in books by some banks.
As previously mentioned... please double check the type of bank account before making threats and badgering NatWest!
I had a situation where a client reconstituted itself ( a members club and not my client at the time) into a limited company but did not tell the bank and kept using the same accounts. This became an issue when the money laundering team did spot checks. The client was forced to open limited company bank accounts (which once the issue from the ML team passed they continued to not use ).
So it is quite plausible that as has been said before the bank has opened the wrong type of account. Only the bank will know this (and not the telephone team), often based on a range of account numbers or sort codes. I suggest your client speaks to or emails their relationship manager.
Experience
I had this situation with one of my client companies and NatWest. Slightly irritating and I suggested that the director should mention it, but at the end of the day, it was a tenner in cash flow, that he'd get knocked off his Corporation Tax bill.
After a couple of years, the bank unilaterally wrote to the company saying "we don't think we should be deducting tax - have you any proof that you're a company ?"
I sent them a copy of the Certificate of Incorporation - rather sharply, perhaps, pointing out that they would know this if they did their Money Laundering/Client ID job properly.