Chapter 19: General
Overview
2985.This Chapter brings together a number of supplementary provisions relating to deduction at source, and gives definitions of certain terms used in this Part.
Section 975: Statements about deduction of income tax
2986.This section imposes a duty on certain persons who are required to make payments under deduction of income tax to provide, on request, a statement of the gross amount of the payment, the sum deducted and the net amount paid. It is based on section 352 of, and paragraph 3(8) and (9) of Schedule 23A to, ICTA.
2987.The section brings the rules for statements about manufactured interest on UK securities into line with the rules for statements about actual interest on UK securities. See Change 148 in Annex 1.
2988.The section also contains specific provisions of a similar nature relating to unauthorised unit trusts.
2989.Subsection (5) requires that the statement be in writing. Electronic statements are provided for by regulations 3 and 4 of the Income and Corporation Taxes (Electronic Certificates of Deduction of Tax and Tax Credit) Regulations 2003 (SI 2003/3143).
2990.Section 352 of ICTA is theoretically capable of applying to MODs within paragraph 4(2) of Schedule 23A to ICTA, as they are treated as annual payments within section 349 of ICTA. But specific rules for statements about MODs are given by regulation 15 of the Income Tax (Manufactured Overseas Dividends) Regulations 1993 (SI 1993/2004). So this section has not been extended to cover payments within section 922, which rewrites paragraph 4(2). See the commentary on that section.
Section 976: Arrangements for payments of interest less tax or at specified net rate
2991.This section clarifies how a provision for the payment of interest “less tax” is to be interpreted if there is no duty to deduct a sum representing income tax. It is based on section 818 of ICTA.
2992.In this section the word “provision” relates to arrangements for the payment of interest as well as to any other context. It applies very widely to primary and secondary legislation, contracts, wills, deeds and any other arrangements, whether in writing or not.
2993.If any such provision is for the payment of interest “less tax”, the words “less tax” are to be ignored.
2994.If the provision is for payment of interest chargeable as mentioned in subsection (6), any provision that purports to require grossing up from a prescribed net rate of interest is to be interpreted as requiring payment at the “gross rate”.
Section 977: Payments to companies
2995.This section provides that, even if the payment is not chargeable to income tax in a company’s hands, this does not affect whether a payment to a company should be subject to deduction of a sum representing income tax. It is based on section 7(1) and (4) of ICTA.
2996.Subsection (2) clarifies that receipt by another person on behalf of, or in trust for, the company is to be treated as receipt by the company. Conversely, if a company receives a payment on behalf of, or in trust for another person, that does not require that the payment be treated as received by that company. If company A receives a payment on behalf of company B, the payment is treated as received by company B.
Section 978: Application to public departments
2997.This section ensures that the rules in this Part regarding deduction at source and collection of income tax apply to payments made by United Kingdom government departments. It is based on section 829(1) and (3) of ICTA.
2998.Without this section, the principle of Crown exemption would apply so that annual payments by UK government departments would not be subject to the provisions of this Part.
2999.Subsection (2) ensures that the section is limited to United Kingdom government departments.
3000.Section 829(2) of ICTA has not been rewritten. That subsection was only necessary because section 829(1) was widely drafted and could have imposed liability on income received by a department. As this section is restricted to annual payments made by departments, section 829(2) of ICTA is unnecessary and is repealed.
3001.No deduction is required from annual payments by one government department to another. In the source legislation, section 829(2) of ICTA addressed this point. But specific provision is not necessary.
3002.Crown exemption does not apply if it is clear from the legislation in question that the provisions concerned do apply to the Crown. For example, it is clear from the legislation about PAYE that the Crown must operate PAYE. Accordingly, section 829(2A) of ICTA is unnecessary and is repealed.
Section 979: Designated international organisations: exceptions from duties to deduct
3003.This section provides that certain payments made by international organisations which are designated by the Treasury are not subject to deduction at source under this Part. It is based on section 582A ICTA.
3004.This section applies to:
payments of yearly interest under section 874 by such a designated organisation or a partnership of which such an organisation is a member;
annual payments, patent royalties and other payments connected with intellectual property under Chapters 6 or 7 of this Part (see Change 81 in Annex 1);
payments under Chapter 14 of this Part (tax avoidance); and
payments of manufactured interest or overseas dividends under sections 919(2) and 922(2).
Section 980: Derivative contracts: exception from duties to deduct
3005.This section provides that nothing in this Part imposes a duty on a company to deduct at source if it is making a payment under certain derivative contracts. It is based on paragraph 51 of Schedule 26 to FA 2002.
3006.The derivative contracts concerned are those to which the calculation rules in Schedule 26 to FA 2002 apply, which are those the company either enters into or acquires. See paragraph 53 of that Schedule.
Section 981: Foreign currency securities etc: exception from duties to deduct
3007.This section provides that nothing in this Part imposes a duty to deduct at source on interest payments within section 755(1) of ITTOIA. It is based on section 581A of ICTA.
Section 982: Income tax is calculated by reference to gross amounts
3008.This section provides that the amount on which tax is to be calculated is the gross amount in each case. It is new.
Section 983: Meaning of “deposit”
3009.This section defines the meaning of “deposit” for the purposes of this Chapter. It is based on section 481(3) of ICTA.
3010.Section 481(3) of ICTA applies to deposit-takers and is also rewritten in Chapter 2 of this Part (deduction by deposit-takers and building societies). By including the definition of “deposit” in this Chapter the application of the definition has been extended to building society deposits. This will ensure that the definitions of “qualifying certificate of deposit” (section 985) and “qualifying uncertificated eligible debt security unit” (section 986) are the same for deposit-takers and building societies.
Section 984: Meaning of “financial instrument”
3011.This section gives the definition of “financial instrument” which occurs in the context of this Part in relation to persons authorised under FISMA who deal in financial instruments as principal. It is based on section 349(5) and (6) of ICTA.
Section 985: Meaning of “qualifying certificate of deposit”
3012.This section defines “qualifying certificate of deposit”. It is based on sections 349(4) and 482(6) of ICTA.
3013.Interest (and, in the case of building societies, dividends) paid by a deposit-taker or building society in respect of a deposit in respect of which a “qualifying certificate of deposit” has been issued is payable gross (see sections 865 and 889).
3014.In order for a “certificate of deposit” (defined in section 1019) to be a “qualifying certificate of deposit”, the certificate must require the issuer to pay an amount of at least £50,000 (or equivalent if made in a foreign currency) at a specified time within five years of the deposit being made.
3015.The definition of “qualifying certificate of deposit” has been aligned to the wording of the definition of “qualifying time deposit” (see section 866) so that it is clear that a “qualifying certificate of deposit” can only be paid in one tranche “at a specified time”. See Change 149 in Annex 1.
Section 986: Meaning of “qualifying uncertificated eligible debt security unit”
3016.This section defines “qualifying uncertificated eligible debt security unit”. It is based on sections 349(4) and 482(6) of ICTA and section 552(2) of ITTOIA.
3017.Interest (and, in the case of building societies, dividends) paid by a deposit-taker or building society in respect of qualifying uncertificated eligible debt security units is payable gross. See sections 864 and 889.
3018.For an uncertificated eligible debt security to be “qualifying” there has to be a right to receive an amount of at least £50,000 (or equivalent if made in a foreign currency) at a specified time within five years of the deposit being made.
3019.The definition of “qualifying uncertificated eligible debt security unit” has been aligned to the wording of the definition of “qualifying time deposit” (see section 866) so that it is clear that a “qualifying uncertificated eligible debt security unit” can only be paid in one tranche “at a specified time”. See Change 149 in Annex 1.
3020.Subsection (4) defines various terms in the definition of “uncertificated eligible debt security units” by reference to the Uncertificated Securities Regulations 2001 (SI 2001/3755).
Section 987: Meaning of “quoted Eurobond”
3021.This section defines “quoted Eurobond”. It is based on the definition in section 349(4) of ICTA.
3022.Interest on a quoted Eurobond is not subject to deduction at source. See sections 882 and 889.
