Income and Corporation Taxes Act 1988

479 Interest paid on deposits with banks etc

(1) Any deposit-taker making a payment of interest in respect of a relevant deposit shall be liable to account for and pay an amount representing income tax on that payment, calculated by applying the composite rate (determined in accordance with section 483) to the grossed-up amount of the payment, that is to say, to the amount which after deduction of tax at the composite rate would be equal to the amount actually paid.

(2) Where in relation to any payment of interest a deposit-taker is liable to account for and pay an amount under subsection (1) above—

(a) subject to subsection (3) below, no assessment to income tax shall be made on, and no repayment of income tax shall be made to, the person receiving or entitled to the payment in respect of it;

(b) the payment shall, in computing the total income of the person entitled to it, be treated as income for that year received by him after deduction of income tax at the basic rate from a corresponding gross amount; and

(c) the payment (and no more) shall, in applying sections 348 and 349 to other payments, be treated as profits or gains which have been brought into charge to income tax.

(3) Subsection (2)(a) above shall not prevent an assessment in respect of income tax at a rate other than the basic rate.

(4) For the purpose of determining whether any or what amount of tax is, by virtue of subsection (2)(b) above, to be taken into account as having been deducted from a gross amount in the case of an individual whose total income is reduced by any deductions, so much only of that gross amount shall be taken into account as is part of his total income as so reduced.

(5) Any payment of interest in respect of which an amount is payable under subsection (1) above shall be a relevant payment for the purposes of Schedule 16 whether or not the deposit-taker making the payment is resident in the United Kingdom.

(6) Schedule 16 shall apply in relation to any payment which is a relevant payment by virtue of subsection (5) above—

(a) with the substitution for any reference to a company of a reference to a deposit-taker;

(b) as if any amount payable under subsection (1) above were payable as income tax;

(c) as if paragraph 5 applied only in relation to payments received by the deposit-taker and falling to be taken into account in computing his income chargeable to corporation tax; and

(d) as if in paragraph 7 the reference to section 7(2) included a reference to sections 11(3) and 349(1).

(7) In relation to any deposit-taker who is not a company, Schedule 16 shall have effect as if—

(a) paragraph 5 were omitted; and

(b) references to accounting periods were references to periods for which the deposit-taker makes up his accounts.