Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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(6) The amount of income tax which the recipient may be liable to account for and pay under regulations under subsection (4) is equal to the amount of the sum representing income tax which the payer would have been required to deduct in accordance with regulations under section 973.

(7) For the purposes of--

(a) regulations under section 973 as applied by subsection (3), and

(b) regulations under subsection (4),

the "gross amount" of a manufactured dividend to which this section applies is equal to the gross amount of the dividend of which it is representative.

Manufactured interest

919 Manufactured interest on UK securities: payments by UK residents etc

(1) This section applies if a person who pays manufactured interest as mentioned in section 578(1)--

(a) is UK resident, or

(b) pays the manufactured interest in the course of a trade carried on in the United Kingdom through a branch or agency.

(2) The payer of the manufactured interest must, on making the payment, deduct from the gross amount of the manufactured interest a sum representing income tax on it at the savings rate in force for the tax year in which the payment is made.

(3) The "gross amount" of manufactured interest is equal to the gross amount of the interest of which it is representative.

(4) This section is subject (in particular) to--

section 583 (manufactured payments exceeding underlying payments),
section 585 (manufactured payments: power to deal with special cases),
section 921 (cases where interest on underlying securities paid gross), and
Chapter 11 (payments between companies etc: exception from duties to deduct).

(5) For provision about the collection of income tax in respect of a payment from which a sum must be deducted under this section--

(a) see Chapter 15 if the payer of the manufactured interest is a company, and

(b) otherwise see Chapter 16.

920 Foreign payers of manufactured interest: the reverse charge

(1) This section applies if a person who pays manufactured interest as mentioned in section 578(1)--

(a) is non-UK resident, and

(b) pays the manufactured interest otherwise than in the course of a trade carried on in the United Kingdom through a branch or agency.

(2) The recipient must account for and pay income tax in respect of the manufactured interest if the recipient--

(a) is UK resident, or

(b) is non-UK resident but receives the manufactured interest for the purposes of a trade carried on by the recipient in the United Kingdom through a branch or agency.

(3) The amount of income tax to be accounted for and paid is equal to the amount of the sum representing income tax which the payer would have been required to deduct under section 919(2) if the payer had been UK resident.

(4) If the payer would not have been required to deduct any sum under section 919(2), the recipient is not required to account for and pay any income tax under this section.

(5) For examples of cases in which subsection (4) applies see (in particular)--

section 921 (cases where interest on underlying securities paid gross), and
Chapter 11 (payments between companies etc: exception from duties to deduct).

(6) This section is subject to--

section 583 (manufactured payments exceeding underlying payments), and
section 585 (manufactured payments: power to deal with special cases).

(7) Provision about the collection of income tax required to be accounted for and paid under this section may be included in regulations under section 586.

921 Cases where interest on underlying securities paid gross

(1) This section applies to manufactured interest which is representative of interest on--

(a) gilt-edged securities, or

(b) securities which are not gilt-edged securities but on which the interest is payable without deduction of income tax.

(2) Section 919(2) does not require any deduction of a sum representing income tax to be made on the payment of the manufactured interest.

(3) In this section "securities" includes loan stock or any similar security.

Manufactured overseas dividends

922 Manufactured overseas dividends: payments by UK residents etc

(1) This section applies if a person who pays a manufactured overseas dividend as mentioned in section 581(1)--

(a) is UK resident, or

(b) pays the manufactured overseas dividend in the course of a trade carried on through a branch or agency in the United Kingdom.

(2) The payer of the manufactured overseas dividend must, on making the payment, deduct from the gross amount of the manufactured overseas dividend a sum representing income tax equal to the relevant withholding tax on the gross amount.

(3) This section is subject (in particular) to--

section 583 (manufactured payments exceeding underlying payments), and
section 585 (manufactured payments: power to deal with special cases).

(4) Provision about the collection of income tax in respect of a payment from which a sum must be deducted under this section may be included in regulations under section 586 or 925.

923 Foreign payers of manufactured overseas dividends: the reverse charge

(1) This section applies if a person who pays a manufactured overseas dividend as mentioned in section 581(1)--

(a) is non-UK resident, and

(b) pays the manufactured overseas dividend otherwise than in the course of a trade carried on through a branch or agency in the United Kingdom.

(2) The recipient must account for and pay income tax in respect of the manufactured overseas dividend if the recipient--

(a) is UK resident, or

(b) is non-UK resident but receives the manufactured overseas dividend for the purposes of a trade carried on by the recipient through a branch or agency in the United Kingdom.

(3) The amount of income tax to be accounted for and paid is equal to the amount of the sum representing income tax which the payer would have been required to deduct under section 922(2) if the payer had been UK resident.

(4) If the payer would not have been required to deduct any sum under section 922(2), the recipient is not required to account for and pay any income tax under this section.

(5) This section is subject to--

section 583 (manufactured payments exceeding underlying payments),
section 585 (manufactured payments: power to deal with special cases), and
section 924 (power to reduce liability under this section).

(6) Provision about the collection of income tax required to be accounted for and paid under this section may be included in regulations under section 586.

924 Power to reduce section 923 liability

(1) The Treasury may by regulations provide for a reduction in the amount of tax to be accounted for and paid as a result of section 923.

(2) The reduction must be a reduction, to such extent and for such purposes as may be determined under the regulations, by reference to amounts of overseas tax charged on, or in respect of--

(a) the making of the manufactured overseas dividend, or

(b) the overseas dividend of which the manufactured overseas dividend is representative.

925 Power to provide set-off entitlement

(1) The Treasury may by regulations provide for a person who, in any prescribed period, pays a manufactured overseas dividend as mentioned in section 581(1) to be entitled--

(a) to set off relevant amounts of tax suffered against relevant tax liabilities, and

(b) to account to the Commissioners for Her Majesty's Revenue and Customs for the balance or claim credit in respect of it.

(2) Regulations under this section may--

(a) prescribe the circumstances in which relevant amounts of tax suffered may be set off against relevant tax liabilities, and

(b) provide for relevant amounts of tax suffered to be set off against relevant tax liabilities in accordance with the regulations and so far as prescribed.

(3) "Relevant amounts of tax suffered" are--

(a) amounts of overseas tax in respect of overseas dividends received by the person in the prescribed period,

(b) amounts of overseas tax charged on, or in respect of, the making of manufactured overseas dividends received by the person in the prescribed period, and

(i) deducted as a result of section 922, or

(ii) accounted for and paid as a result of section 923,

from any manufactured overseas dividends received by the person in the prescribed period.

(4) "Relevant tax liabilities" are sums due from the person on account of the amounts deducted by the person as a result of section 922 from the manufactured overseas dividends paid by the person in the prescribed period.

(5) In this section--

"credit" includes credit against corporation tax, and
"prescribed" means prescribed in regulations under this section.

Supplementary

926 Interpretation of Chapter

(1) Expressions (except "prescribed") used in this Chapter and in Chapter 2 of Part 11 (manufactured payments) have the same meaning in this Chapter as in that Chapter.

(2) References in this Chapter to a trade carried on through a branch or agency are to be read, in relation to a company, as references to a trade carried on through a permanent establishment.

927 Regulation-making powers: general

Regulations under this Chapter may make different provision for different cases.

Chapter 10 Deduction from non-commercial payments by companies

928 Chargeable payments connected with exempt distributions

(1) This section applies to any payment chargeable to tax under section 214(1) of ICTA (chargeable payments made within 5 years of an exempt distribution).

(2) The person by or through whom the payment is made must, on making the payment, deduct from it a sum representing income tax on it at the basic rate in force for the tax year in which it is made.

(3) See Chapter 11 (payments between companies etc) for an exception from the duty to deduct sums representing income tax under this section.

(4) For provision about the collection of income tax in respect of a payment from which a sum must be deducted under this section--

(a) see Chapter 15 if the person making the payment is a UK resident company, and

(b) otherwise see Chapter 16.

(5) In this section "payment" does not include a transfer of money's worth that is treated as a payment for the purposes of section 214 of ICTA.

Chapter 11 Payments between companies etc: exception from duties to deduct

Introduction

929 Overview of Chapter

(1) This Chapter makes provision allowing some payments made by companies, local authorities and qualifying partnerships to be paid gross where they would otherwise be subject to specified duties to deduct sums representing income tax under this Part.

(2) Section 930 disapplies specified duties to deduct where a payment is made by a company, local authority or qualifying partnership which reasonably believes that the payment is an excepted payment.

(3) Section 931 confers power on an officer of Revenue and Customs to disapply section 930 by direction.

(4) Section 932 defines "qualifying partnership".

(5) Sections 933 to 937 make provision as to when a payment is an excepted payment.

(6) Section 938 deals with what happens when a company, local authority or qualifying partnership makes a payment without deducting a sum representing income tax under a reasonable but incorrect belief that the payment is an excepted payment.

Exception from duties to deduct for excepted payments

930 Exception from duties to deduct sums representing income tax

(1) The duties to deduct sums representing income tax mentioned in subsection (2) do not apply to a payment if--

(a) it is made by a company, local authority or qualifying partnership, and

(b) at the time the payment is made, the company, authority or partnership reasonably believes that it is an excepted payment.

(2) The duties to deduct are those under--

(a) section 874(2) (certain payments of yearly interest),

(b) section 889(4) (payments in respect of building society securities),

(d) section 903(7) (patent royalties),

(e) section 906(5) (certain royalty payments etc where the owner lives abroad),

(f) section 910(2) (proceeds of a sale of patent rights paid to non-UK residents),

(g) section 919(2) (manufactured interest on UK securities: payments by UK residents etc), and

(h) section 928(2) (chargeable payments connected with exempt distributions).

(3) Subsection (1) has effect subject to any directions under section 931.

(4) Subsection (1) does not apply to a payment made by a company, or qualifying partnership, acting as trustee or agent for another person.

931 Power to make directions disapplying section 930

(1) An officer of Revenue and Customs may give a direction to a company, local authority or qualifying partnership directing that section 930 is not to apply in relation to any payment that--

(a) is made by the company, authority or partnership after the giving of the direction, and

(b) is specified in the direction or is of a description so specified.

(2) A direction under this section may be given only if the officer has reasonable grounds for believing, as respects each payment to which the direction relates, that the payment will not be an excepted payment at the time it is made.

(3) A direction under this section may be varied or revoked by a later direction.

(4) A variation or revocation of a direction under this section has effect only in relation to payments made after the date of the variation or revocation.

932 Meaning of "qualifying partnership"

For the purposes of this Chapter a partnership is a "qualifying partnership" if any partner in the partnership is a company or a local authority.

Excepted payments

933 UK resident companies

A payment is an excepted payment if the person beneficially entitled to the income in respect of which the payment is made is a UK resident company.

934 Non-UK resident companies

(1) A payment is an excepted payment if each of the following conditions is met in relation to the payment.

(2) The person beneficially entitled to the income in respect of which the payment is made must be a non-UK resident company.

(3) The non-UK resident company must carry on a trade in the United Kingdom through a permanent establishment.

(4) The payment must be one that is required to be brought into account in calculating the chargeable profits (within the meaning given by section 11(2) of ICTA) of the non-UK resident company.

935 PEP and ISA managers

(1) A payment is an excepted payment if each of the following conditions is met in relation to the payment.

(2) The person to whom the payment is made must be, or must be the nominee of, the plan manager of a plan of a kind to which regulations under Chapter 3 of Part 6 of ITTOIA 2005 (income from individual investment plans) apply.

(3) The plan manager must receive the payment in respect of investments under the plan.

936 Recipients who are to be paid gross

(1) A payment is an excepted payment if it is made to, or to the nominee of, a recipient who is specified in subsection (2) as a recipient who is to be paid gross.

(2) The following recipients are to be paid gross--

(a) a local authority,

(b) a health service body within the meaning of section 519A(2) of ICTA,

(d) a charity,

(e) a body for the time being mentioned in section 507(1) of ICTA (bodies that are allowed the same exemption from tax as charitable companies the whole income of which is applied to charitable purposes),

(f) an Association which complies with the conditions in section 508(1) of ICTA (scientific research organisations),

(g) the scheme administrator of a registered pension scheme,

(h) the sub-scheme administrator of a sub-scheme which forms part of a split scheme pursuant to the Registered Pensions (Splitting of Schemes) Regulations 2006 (S.I. 2006/569),

(i) the trustees of a scheme entitled to exemption under section 613(4) of ICTA (Parliamentary pension funds), and

(j) the persons entitled to receive the income of a fund entitled to exemption under section 614(3) of ICTA (certain colonial, etc pension funds).

(3) The Treasury may by order amend this section so as to add to, restrict or otherwise alter the persons or bodies who are to be paid gross.

937 Partnerships

(1) A payment is an excepted payment if each of the following conditions are met.

(2) A partnership must be beneficially entitled to the income in respect of which the payment is made.

(3) Each partner in the partnership must be--

(a) a person or body mentioned in section 936, or

(b) a person or body to whom one of subsections (4) to (6) applies.

(4) This subsection applies to a UK resident company.

(5) This subsection applies to a company that--

(a) is non-UK resident,

(b) carries on a trade in the United Kingdom through a permanent establishment, and

(c) is required to bring into account, in calculating its chargeable profits (within the meaning of section 11(2) of ICTA), the whole of any share of the payment that is attributable to it because of sections 114 and 115 of ICTA.

(6) This subsection applies to the European Investment Fund.

(7) The Treasury may by order amend this section to add to, restrict or otherwise alter the persons or bodies falling within subsection (3)(b).

Incorrect belief that payment is an excepted payment

938 Consequences of reasonable but incorrect belief

(1) This section applies if--

(a) a payment is made by a company, local authority or qualifying partnership without a sum representing income tax on the payment being deducted from it,

(b) at the time the payment is made, the company, authority or partnership reasonably believes that it is an excepted payment,

(c) one of the duties to deduct sums representing income tax mentioned in section 930(2) would apply to the payment if the company did not so believe, and

(d) the payment is not an excepted payment at the time it is made.

(2) This Part has effect in relation to the payment as if section 930(1) had never disapplied the duties to deduct mentioned in section 930(2).

Chapter 12 Funding bonds

939 Duty to retain bonds where issue treated as payment of interest

(1) This section applies if--

(a) there is an issue of funding bonds to a creditor in respect of a liability to pay interest on a debt incurred by a government, public institution, other public authority or body corporate,

(b) by virtue of section 582(1)(a) of ICTA or section 380 of ITTOIA 2005, the issue is treated as if it were a payment of an amount of interest ("the deemed interest"), and

(c) the person by or through whom the bonds are issued is required, under this Part, to deduct a sum representing income tax from the deemed interest.

(2) The person by or through whom the bonds are issued must retain bonds the value of which is, at the time of their issue, equal to income tax on the deemed interest at the savings rate in force for the tax year in which the bonds are issued.

(3) A person who retains bonds in accordance with subsection (2) is treated as complying with the duty to deduct a sum representing income tax from the deemed interest.

(4) The person may tender the bonds retained in satisfaction of any income tax to be collected from the person in respect of the deemed interest under Chapter 15 or 16.

(5) But see section 940 for provision about circumstances where it is impracticable to retain bonds in accordance with subsection (2).

(6) In this Chapter "funding bonds" includes any bonds, stocks, shares, securities or certificates of indebtedness.

940 Exception from duty to retain bonds

(1) This section applies if an issue of funding bonds is treated as a payment of interest ("the deemed interest") as mentioned in section 939(1) and--

(a) the person by or through whom the bonds are issued is required to retain bonds under section 939(2), but

(b) it is impracticable for the person to do so.

(2) The duty to deduct a sum representing income tax from the deemed interest under this Part does not apply if the person tells the Commissioners for Her Majesty's Revenue and Customs--

(a) the names and addresses of the persons to whom the bonds have been issued, and

(b) the amount of the bonds issued to each person.

(3) Accordingly--

(a) the duty to retain bonds under section 939(2) does not apply, and

(b) the provisions in Chapters 15 and 16 about the collection of income tax in respect of the deemed interest do not apply.

Chapter 13 Unauthorised unit trusts

941 Deemed payments to unit holders and deemed deductions of income tax

(1) Subsections (2) and (3) apply if a unit holder in an unauthorised unit trust is treated under Chapter 10 of Part 4 of ITTOIA 2005 (distributions from unauthorised unit trusts if the trustees are UK resident) as having received income on a date.

(2) The trustees are treated as making on that date a payment to the unit holder representing the gross amount of the income (see section 548(2) of ITTOIA 2005).

(3) The trustees are also treated as deducting from that payment a sum representing income tax on the gross amount of the income at the basic rate for the tax year in which the payment is made.

(4) Subsection (5) applies if the trustees of an unauthorised unit trust are treated under section 469(4A) of ICTA (distributions from unauthorised unit trusts if the trustees are UK resident) as making an annual payment to a unit holder.

(5) The trustees are also treated as deducting from the annual payment a sum representing income tax on its gross amount (see section 469(4C) of ICTA) at the basic rate for the tax year in which the payment is made.

(6) In this Chapter--

"deemed deduction" means a deduction within subsection (3) or (5),
"deemed payment" means a payment within subsection (2) or (4), and
"the gross amount" means, in relation to a deemed payment, the amount of the payment before the deemed deduction is made from it.

942 Income tax to be collected from trustees

(1) This section applies if in a tax year the trustees of an unauthorised unit trust are treated as making deemed payments.

(2) Income tax is to be collected through trustees' self-assessment returns for the tax year (see Chapter 17).

(3) The amount of income tax to be collected ("the collectable amount") is the amount equal to the sum of the deemed deductions from the deemed payments.

(4) But if the sum of the gross amounts of the deemed payments exceeds the trustees' modified net income for the tax year (see section 1025), the collectable amount is the amount calculated by taking the steps in subsection (5).

(5) The steps to be taken are as follows.

Step 1

Take the amount equal to the sum of the gross amounts of the deemed payments and reduce that amount by--

(a)

the amount of the trustees' income pool as at the start of the tax year (see section 943), or

(b)

if less, the amount by which the sum of the gross amounts of the deemed payments exceeds the trustees' modified net income.

Step 2

Apply the basic rate for the tax year to the result from Step 1.

943 Calculation of trustees' income pool

(1) This is how the amount of the trustees' income pool as at the start of a tax year ("the current tax year") is calculated.

The calculation to be used depends on which of the following cases applies.

But this needs to be read with subsections (2) and (3).

Case 1

This case applies if the trustees' modified net income for the previous tax year exceeded the sum of the gross amounts of the deemed payments treated as made by the trustees in that year.

The trustees' income pool as at the start of the current tax year is the sum of--

(a)

the amount of the trustees' income pool as at the start of the previous tax year, and

(b)

the amount by which the trustees' modified net income for the previous tax year exceeded the sum of the gross amounts of the deemed payments treated as made by the trustees in that year.

Case 2

This case applies if the trustees' modified net income for the previous tax year was less than the sum of the gross amounts of the deemed payments treated as made by the trustees in that year.

The trustees' income pool as at the start of the current tax year is--

(a)

the amount of the trustees' income pool as at the start of the previous tax year, less

(b)

the amount of the reduction made at Step 1 in section 942(5) for the purpose of calculating the collectable amount for the previous tax year.

Case 3

This case applies if the trustees' modified net income for the previous tax year equalled the sum of the gross amounts of the deemed payments treated as made by the trustees in that year.

The trustees' income pool as at the start of the current tax year is the same as the amount of the trustees' income pool as at the start of the previous tax year.

(2) If the trustees were non-UK resident for the previous tax year, references in subsection (1) to the previous tax year are to be read as references to the last tax year prior to the current tax year for which the trustees were UK resident.

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