Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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Rule 2

The activities of a grouping are treated as those of its members acting jointly.

Rule 3

Each member of a grouping is treated as having a share of the grouping's property, rights and liabilities.

Rule 4

Any trade or profession carried on by the grouping is treated as carried on in partnership by the members of the grouping.

(2) For the purposes of Rule 3, a member's share of any property, rights or liabilities of a grouping is determined according to the contract under which the grouping is established.

(3) If the contract does not provide for this, the member's share is determined by reference to the share of the profits of the grouping to which the member is entitled under the contract.

(4) If the contract does not provide for this either, the members are treated as having equal shares of the property, rights and liabilities of the grouping.

(5) "European Economic Interest Grouping" means a European Economic Interest Grouping formed under Council Regulation (EEC) No 2137/85 of 25 July 1985, whether registered in Great Britain, Northern Ireland or elsewhere.

843 Restriction of deductions for annual payments

In calculating a person's income from any source, no deduction is allowed for an annual payment to which section 904 applies (annual payments for dividends or non-taxable consideration).

844 Letters patent etc: exempting provisions

(1) No provision in letters patent granted by the Crown is to be construed as conferring exemption from income tax.

(2) Subsection (1) applies whether the letters patent are granted before or after the date on which this Act is passed.

(3) Any provision of the letters patent purporting to override the effect of subsection (1) is void.

845 Extra return to be treated as interest etc

(1) This section applies if--

(a) securities ("old securities") of a particular kind are issued by way of an original issue of securities of that kind,

(b) on a later occasion securities ("new securities") of the same kind are issued,

(c) a sum ("the extra return") is payable in respect of the new securities by the issuer of them to reflect the fact that interest is accruing on the old securities,

(d) the issue price of the new securities includes an element (whether or not separately identified) representing payment for the extra return, and

(e) the extra return is equal to the amount of interest mentioned in subsection (2).

(2) The amount of interest referred to in subsection (1)(e) is--

(a) the amount of interest payable for the relevant period on so many old securities as there are new, or

(b) if there are more new securities than old, the amount of interest which would be so payable if there were as many old securities as new.

(3) A sum paid or payable by way of the extra return is treated for income tax purposes as if it were paid or payable as interest (so far as it would not be treated in that way apart from this subsection).

(4) No relief for the extra return is to be given to the issuer of the new securities.

846 Interpretation of section 845

(1) This section applies for the purposes of section 845.

(2) Securities are of the same kind if they--

(a) are treated as being of the same kind by the practice of a recognised stock exchange, or

(b) would be so treated if dealt in on a recognised stock exchange.

(3) "The relevant period" is the period--

(a) beginning with the day mentioned in subsection (4), and

(b) ending with the day ("the new issue day") on which the new securities are issued.

(4) The day referred to in subsection (3)(a) is the day after--

(a) the last (or only) interest payment day before the new issue day, or

(b) if there is no interest payment day before the new issue day, the day on which the old securities are issued.

(5) In subsection (4) "interest payment day" means a day on which interest is payable under the old securities.

(6) "Relief" means relief by way of deduction in calculating amounts of income charged to income tax or in calculating net income.

Part 15 Deduction of income tax at source

Chapter 1 Introduction

847 Overview of Part

(1) This Part deals with deduction of income tax at source.

(2) The following Chapters contain duties to deduct sums representing income tax from certain payments--

(a) Chapter 2 (deposit-takers and building societies),

(b) Chapter 3 (certain payments of yearly interest),

(d) Chapter 5 (payments of UK public revenue dividends),

(e) Chapter 6 (annual payments and patent royalties),

(f) Chapter 7 (other payments connected with intellectual property),

(g) Chapter 9 (manufactured payments), and

(h) Chapter 10 (non-commercial payments by companies).

(3) Chapters 6 and 7 are subject to Chapter 8 which makes special provision in relation to the deduction of sums representing income tax from royalty payments.

(4) Chapter 11 contains provision disapplying some of the duties to deduct where payments are made between companies etc.

(5) The following Chapters contain further provision in connection with the deduction (or deemed deduction) of sums representing income tax from certain payments (or deemed payments)--

(a) Chapter 12 (funding bonds),

(b) Chapter 13 (unauthorised unit trusts), and

(6) Chapters 15 to 17 contain provision about the collection of income tax in respect of payments from which sums are required to be deducted (or from which sums are treated as deducted) under the preceding Chapters.

(7) Chapter 18 deals with regimes involving the deduction of income tax at source which apply in the case of--

(a) visiting performers,

(b) non-resident landlords, and

(8) Chapter 19 makes general provision for this Part including--

(a) provision about the giving of statements about deduction of income tax,

(b) provision about payments where the recipient is a company or where the payer is a public department, and

(c) exceptions from duties to deduct for payments made by designated international organisations, some payments under derivative contracts and for some payments of interest on foreign currency securities.

(9) The following provisions also deal with deduction of income tax at source--

(a) Part 11 of ITEPA 2003 (Pay As You Earn), and

(b) Chapter 3 of Part 3 of FA 2004 (construction industry scheme).

848 Income tax deducted at source treated as income tax paid by recipient

(1) A sum representing income tax which is deducted (or treated as deducted) under this Part from a payment is treated as income tax paid by the recipient.

(2) The sum is accordingly taken into account under sections 59B and 59D of TMA 1970 (see also paragraph 8 of Schedule 18 to FA 1998) in determining the income tax or corporation tax payable by, or repayable to, the recipient.

(3) But this section does not apply to income tax deducted at source under section 966 (visiting performers) or 971 (non-resident landlords).

849 Interaction with other Income Tax Acts provisions

(1) Regulations made under section 791 of ICTA (double taxation relief: power to make regulations for carrying out section 788) make provision disapplying or otherwise affecting duties to deduct under this Part in circumstances where relief is available under double taxation arrangements.

(2) Sections 821 and 822 of ICTA make provision in relation to under-deductions and over-deductions from some payments which are made before the passing of the relevant annual Act imposing income tax and corporation tax.

(3) In accordance with section 783 of ITTOIA 2005 (general disregard of exempt income for income tax purposes), any payment (or part of a payment) which is exempt from income tax as a result of Part 6 of ITTOIA 2005 is ignored for the purposes of the duties under this Part.

This is subject to any express or implied provision to the contrary.

(4) Paragraphs 11 to 13 of Schedule 2 to FA 2005 (alternative finance arrangements: further provisions) make provision for Chapters 2 to 5, 12 and 19 to have effect in relation to alternative finance arrangements.

(5) For exceptions from the duties to deduct under Chapters 3, 6, 7, 10 and 14 in connection with the London Olympic Games and Paralympic Games see--

(a) Chapter 6 of Part 3 of FA 2006, and

(b) regulations made under that Chapter.

Chapter 2 Deduction by deposit-takers and building societies

Introduction

850 Overview of Chapter

(1) This Chapter deals with the deduction of sums representing income tax by deposit-takers and building societies from payments of interest on relevant investments.

(2) Section 851 contains a general duty to deduct sums representing income tax from such payments and section 852 confers power on the Commissioners for Her Majesty's Revenue and Customs to disapply section 851 by regulations.

(3) Sections 853 to 856 set out some basic concepts, so that--

(a) section 853 defines "deposit-taker" (and section 854 allows the Treasury by order to prescribe persons as deposit-takers),

(b) section 855 defines "investment" and "deposit", and

(4) Section 856 is subject to--

(a) section 857 (which sets out when investments must be treated as relevant and when they may be treated as not relevant), and

(b) sections 858 to 870 (which describe various kinds of investment which are not relevant investments).

(5) Sections 871 to 873 contain supplementary provisions.

(6) For the purposes of this Chapter--

(a) any reference to interest paid by a building society on a relevant investment includes a reference to a dividend paid by the society in respect of the investment,

(b) "dividend" includes any distribution (whether or not described as a dividend), and

Duty to deduct sums representing income tax

851 Duty to deduct sums representing income tax

(1) This section applies if--

(a) a deposit-taker or building society makes a payment of interest on an investment (see section 855(1)), and

(b) when the payment is made, the investment is a relevant investment (see section 856).

(2) The deposit-taker or building society must, on making the payment, deduct from it a sum representing income tax on it at the savings rate in force for the tax year in which it is made.

(3) For provision about the collection of income tax in respect of a payment from which a sum must be deducted under this section, see Chapter 15.

852 Power to make regulations disapplying section 851

(1) The Commissioners for Her Majesty's Revenue and Customs may make regulations which provide that section 851 does not apply in relation to a payment of interest if prescribed conditions are met.

(2) The regulations may, in particular, include--

(a) provision for a certificate to be supplied to the effect that the person beneficially entitled to a payment is unlikely to be liable to pay any income tax for the tax year in which it is made,

(b) provision for the certificate to be supplied by that person or another prescribed person,

(d) provision about the form and contents of a certificate.

(3) Any provision included in the regulations under subsection (2)(d) may allow the Commissioners to make requirements about the form and contents of a certificate.

(4) In this section "prescribed" means prescribed in the regulations.

Deposit-takers and relevant investments

853 Meaning of "deposit-taker"

(1) In this Chapter "deposit-taker" means--

(a) the Bank of England, or

(b) a person to whom one of the following subsections or section 854 applies.

(2) This subsection applies to a person--

(a) who has permission under Part 4 of FISMA 2000 to accept deposits which are relevant investments, and

(b) who is not--

(i) a building society,

(ii) a society registered within the meaning of the Friendly Societies Act 1974 (c. 46) or incorporated under the Friendly Societies Act 1992 (c. 40),

(iii) a society registered as a credit union under the Industrial and Provident Societies Act 1965 (c. 12) or the Credit Unions (Northern Ireland) Order 1985 (S.I. 1985/1205 (N.I. 12)), or

(iv) an insurance company within the meaning of section 275 of FA 2004.

(3) This subsection applies to a company within the meaning of the Companies Act 1985 (c. 6)--

(a) in respect of which a resolution has been passed by a local authority under--

(i) section 48(3) of the Banking Act 1979 (c. 37), or

(ii) section 103(3) of the Banking Act 1987 (c. 22), and

(b) which is exempt from the prohibition in section 19 of FISMA 2000 on accepting deposits which are relevant investments.

(4) This subsection applies to a local authority.

(5) This subsection applies to an EEA firm which--

(a) is of the kind mentioned in paragraph 5(b) of Schedule 3 to FISMA 2000 (EEA passport rights), and

(b) has permission under paragraph 15 of that Schedule to accept deposits (as a result of qualifying for authorisation under paragraph 12(1) of that Schedule).

(6) This subsection applies to a person--

(a) who is authorised for the purposes of FISMA 2000, and

(b) whose business consists wholly or mainly of dealing in financial instruments as principal.

For the meaning of "financial instrument", see section 984.

854 Power to prescribe persons as deposit-takers

(1) This section applies to a person who receives deposits in the course of carrying on business or activities and--

(a) is for the time being prescribed by order by the Treasury for the purposes of this section, or

(b) is a member of a class of persons which is for the time being so prescribed.

(2) An order under this section may prescribe a person or class of person--

(a) in relation to all deposits which are relevant investments, or

(b) in relation to deposits which are relevant investments of a kind specified in the order.

(3) If a person is prescribed only in relation to deposits which are relevant investments of a kind specified in the order, the reference in section 851(1)(b) to "relevant investment" is to be read as a reference only to relevant investments of the kind so specified.

855 Meaning of "investment" and "deposit"

(1) In this Chapter "investment" means--

(a) a deposit with a deposit-taker,

(b) a deposit with a building society,

(d) a loan to a building society.

(2) In this Chapter "deposit" means a sum of money paid on terms which mean that it will be repaid (with or without interest)--

(a) on demand, or

(b) at a time or in circumstances agreed by or on behalf of the person who pays it and the person who receives it.

856 Investments which are relevant investments

(1) An investment is a relevant investment for the purposes of this Chapter if it meets--

(a) the individual interest condition (see subsection (3)),

(b) the Scottish partnership condition (see subsection (4)),

(d) the settlement condition (see subsection (6)).

(2) But an investment is not a relevant investment if any of sections 858 to 870 prevent it from being a relevant investment.

(3) An investment meets the individual interest condition if the only persons beneficially entitled to interest on the investment are individuals.

(4) An investment meets the Scottish partnership condition if--

(a) a Scottish partnership is beneficially entitled to all interest on the investment, and

(b) that partnership consists only of individuals.

(5) An investment meets the personal representative condition if personal representatives are entitled to any interest on the investment and they receive it in that capacity.

(6) An investment meets the settlement condition if all interest on the investment is income arising to the trustees of a discretionary or accumulation settlement and they receive it in that capacity.

For the meaning of "discretionary or accumulation settlement", see section 873(1).

857 Investments to be treated as being or as not being relevant investments

(1) A deposit-taker or building society must treat every investment with it as a relevant investment unless satisfied that the investment is not a relevant investment.

(2) If a deposit-taker or building society is satisfied that an investment is not a relevant investment, it may continue to treat the investment as not being a relevant investment until subsection (3) applies.

(3) This subsection applies when the deposit-taker or building society has information which can reasonably be taken to indicate that the investment is or may be a relevant investment.

Investments which are not relevant investments: non-UK resident beneficiaries

858 Declarations of non-UK residence: individuals

(1) This section applies to an investment with a deposit-taker or building society which meets the individual interest condition in section 856(3).

(2) The investment is not a relevant investment if--

(a) an appropriate person has made the declaration set out in subsection (3) to the deposit-taker or building society,

(b) the declaration contains the undertaking set out in subsection (4),

(c) the declaration contains the name and principal residential address of the individual or (as the case may be) each of the individuals entitled to the interest,

(d) the declaration contains such other information as the Commissioners for Her Majesty's Revenue and Customs may reasonably require, and

(e) the declaration is in such form as the Commissioners may prescribe or authorise.

(3) The declaration is that, at the time when the declaration is made--

(a) the person who is beneficially entitled to the interest is not ordinarily UK resident, or

(b) (as the case may be) all the persons who are so entitled are not ordinarily UK resident.

(4) The undertaking is an undertaking by the person making it to notify the person to whom it is made if any individual in respect of whom it is made becomes ordinarily UK resident.

(5) In this section "appropriate person" means--

(a) a person who is beneficially entitled to interest on the investment, or

(b) a person to whom any such interest is payable.

859 Declarations of non-UK residence: Scottish partnerships

(1) This section applies to an investment with a deposit-taker or building society which meets the Scottish partnership condition in section 856(4).

(2) The investment is not a relevant investment if--

(a) an appropriate person has made the declaration set out in subsection (3) to the deposit-taker or building society,

(b) the declaration contains the undertaking set out in subsection (4),

(d) the declaration contains such other information as the Commissioners for Her Majesty's Revenue and Customs may reasonably require, and

(e) the declaration is in such form as the Commissioners may prescribe or authorise.

(3) The declaration is that, at the time when the declaration is made, all of the partners of the partnership are not ordinarily UK resident.

(4) The undertaking is an undertaking by the person making it to notify the person to whom it is made if any partner in respect of whom it is made becomes ordinarily UK resident.

(5) In this section "appropriate person" means--

(a) the partnership that is beneficially entitled to the interest on the investment, or

(b) a person to whom any such interest is payable.

860 Declarations of non-UK residence: personal representatives

(1) This section applies to an investment with a deposit-taker or building society which meets the personal representative condition in section 856(5).

(2) The investment is not a relevant investment if--

(a) an appropriate person has made the declaration set out in subsection (3) to the deposit-taker or building society,

(b) the declaration contains such information as the Commissioners for Her Majesty's Revenue and Customs may reasonably require, and

(3) The declaration is that the deceased was not ordinarily UK resident immediately before the deceased's death.

(4) In this section "appropriate person" means--

(a) any of the personal representatives who are entitled to receive interest on the investment, or

(b) a person to whom any such interest is payable.

861 Declarations of non-UK residence: settlements

(1) This section applies to an investment with a deposit-taker or building society which meets the settlement condition in section 856(6).

(2) The investment is not a relevant investment if--

(a) an appropriate person has made the declaration set out in subsection (3) to the deposit-taker or building society,

(b) the declaration contains the undertaking set out in subsection (4),

(c) the declaration contains such information as the Commissioners for Her Majesty's Revenue and Customs may reasonably require, and

(d) the declaration is in such form as the Commissioners may prescribe or authorise.

(3) The declaration is that, at the time when the declaration is made--

(a) the trustees who are entitled to the interest are non-UK resident (see section 475), and

(b) no person who is a trustee has reasonable grounds for believing that any beneficiary under the settlement is--

(i) an individual who is ordinarily UK resident,

(ii) a company which is UK resident, or

(iii) a Scottish partnership any of the partners of which is an individual who is ordinarily UK resident or a company which is UK resident.

(4) The undertaking is an undertaking by the person making it to notify the person to whom it is made if--

(a) the trustees become UK resident,

(b) an individual in respect of whom it is made becomes ordinarily UK resident,

(d) an individual partner in any Scottish partnership in respect of which it is made becomes ordinarily UK resident,

(e) a company partner in any Scottish partnership in respect of which it is made becomes UK resident,

(f) a partner who is an ordinarily UK resident individual or a UK resident company joins any Scottish partnership in respect of which it is made, or

(g) a person within any of sub-paragraphs (i) to (iii) of subsection (3)(b) becomes or is found to be a beneficiary under the settlement to which the declaration relates.

(5) In this section "appropriate person" means--

(a) any person who is a trustee entitled to receive interest on the investment, or

(b) a person to whom any such interest is payable.

(6) References in this section to a beneficiary under the settlement are to be construed in accordance with section 873(3) (meaning of "beneficiary under a discretionary or accumulation settlement").

862 Inspection of declarations

(1) This section applies if an officer of Revenue and Customs by notice requires a deposit-taker or building society to make available for inspection the declarations made to it under sections 858 to 861 which are referred to in the notice.

(2) The deposit-taker or building society must make the declarations available for inspection--

(a) by an officer of Revenue and Customs who is named in the notice, and

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