Background Note
5.Income tax is usually due on interest that building societies, banks and other deposit-takers pay to savers and investors. There are, however, circumstances in which income tax will not be due, for example where a saving or investment product is tax-advantaged (such as an Individual Savings Account).
6.Building societies, banks and other deposit-takers usually deduct sums representing income tax from interest payable on most of their savings or investment products. These sums are deducted at the basic rate of income tax and paid to HM Revenue & Customs (HMRC) under the Tax Deduction Scheme for Interest.
7.However, any interest payable on investments that are qualifying time deposits is excluded from these tax-deduction arrangements. This interest is paid gross to investors, and each investor is required to make separate arrangements to account for any tax due to HMRC.
8.The effect of this section is to remove this exclusion for qualifying time deposits made on or after 6 April 2012. Building societies, banks and other deposit-takers will be required to deduct sums representing income tax at the basic rate from interest they pay on these qualifying time deposits. However, where an investor is not liable to pay tax on interest, for example because their total taxable income is less than their tax-free personal allowance, they can register with their account provider to receive interest payments gross.