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Interest paid by LLP

Interest paid by LLP

If a Ltd company pays interest on a loan from an individual the interest would normally be paid net with a CT61 to cover the tax deducted (s874 Income Tax Act 2007).

If an LLP makes a similar payment is there any legal requirement to deduct tax and report the payment to HMRC?

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06th May 2014 21:59

No

Part 15 does not apply to LLPs which is normally a partnership for tax purposes.

Who is the interest being paid to? Interest on capital from non-corporate LLP members should be treated as a first share of profits and won't be allowable in deducting the taxable profits for them. So the individual wouldn't declare as interest.

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07th May 2014 21:56

The interest is being paid both to non-corporate LLP members and to non-member individuals who have made loans to the LLP.

My understanding is the interest on capital from non-corporate LLP member should be treated as LLP profits for the individual rather than interest.

The interest on the loan from the non-member individual has been paid without deducting 20% tax and I'm trying to establish whether this needs to be deducted or reported to HMRC going forward (or possibly even retrospectively).

 

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07th May 2014 22:41

No

My question was just building up to the treatment of the interest in the non-corporate member's hands.

Whether it is paid to a corporate or non-corporate member, or an individual or corporate entity who are not members, I still think there is no requirement to withhold basic rate tax.

Have a look at the guidance notes to form CT61. Unusually good.

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08th May 2014 10:58

Thanks tebthereb.

I've read the CT61 guidance:(http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=kOv1Yhw853I&formId=7040)

"If your company or organisation pays interest, royalties, alternative finance payments, manufactured payments, relevant distributions or any similar recurring payment, you must generally make these payments after deducting Income Tax at the basic rate - currently 20 per cent. You need to tell HM Revenue & Customs (HMRC) about these payments and pay the Income Tax that you've collected. Use form CT61 to do this unless your company or organisation is a limited liability partnership (LLP) .You can’t download form CT61 but you can request it online.

If you are an LLP you must send a letter to HM Revenue and Customs, Self Assessment, PO Box 4000, Cardiff, CF14 8HR. Clearly stating that you are a limited liability partnership and quoting your Unique Taxpayer reference with details of the payment made and the tax deducted"

This implies that if the LLP does make deductions it needs to be reported in a letter to HMRC, but if there is no legal obligation (it doesn't appear to be in s874, but there may be other legislation I've not seen) then it must be optional.

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09th May 2014 06:12

hmm

Not sure why it says that, but the CT61 notes seem fairly clear:

http://www.hmrc.gov.uk/ctsa/ct61-notes-2010.pdf

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09th May 2014 06:31

It looks to me like HMRC only really have a clear mechanism of collecting these payments through the Corporation Tax department and LLPs don't exist as an entity in the CT world. There doesn't appear to be any legislation requiring LLPs to make the deductions, so if LLPs do withhold the 20% tax HMRC are advising to just write a letter to SA.

Thanks for your help.

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