Section 874: Duty to deduct from certain payments of yearly interest
2644.This section sets out the basic duty to deduct sums representing income tax from certain payments of yearly interest. It is based on sections 4 and 349 of ICTA.
2645.This section does not apply to interest paid by building societies. See the commentary on section 875 and Change 134 in Annex 1.
2646.Subsection (1)(d) concerns payments made to persons whose “usual place of abode” is outside the United Kingdom.
2647.The term “usual place of abode” also occurs:
in section 887 in this Chapter (industrial and provident societies);
in section 906 (certain royalties etc); and
in section 971 (non-resident landlords).
2648.The term “usual place of abode” is consciously retained, because it is a technical term, distinct from residence.
2649.The duty to deduct in subsection (2) applies to any yearly interest arising in the United Kingdom, subject to the exceptions mentioned in subsections (3) and (4).
2650.The source legislation in section 349(2) of ICTA identifies yearly interest by referring both to interest falling within Chapter 2 of Part 4 of ITTOIA (income tax) and Case III of Schedule D (corporation tax). But before the amendment to section 349(2) was made by ITTOIA, the yearly interest concerned was identified simply by reference to section 18(3)(a) of ICTA (the income tax definition of interest chargeable under Case III of Schedule D).
2651.Here, in rewriting section 349(2) of ICTA, the opportunity is taken to revert to this single test, which amounts to the requirement that the income arises in the United Kingdom. The reference to “Schedule A” in section 18(3)(a) of ICTA is not included as this applied only to annual payments.
2652.Subsection (2) also makes it explicit that the rate at which deduction must be made is the savings rate, that being the rate applicable to income within Chapter 2 of Part 4 of ITTOIA.
