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Income Tax Bill


Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 9 — Manufactured payments

424

 

Manufactured interest

852     

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

5

(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

10

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),

15

section 585 (manufactured payments: power to deal with special cases),

section 854 (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

20

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.

853     

Foreign payers of manufactured interest: the reverse charge

25

(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.

30

(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

35

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 852(2) if the payer had been UK resident.

(4)   

If the payer would not have been required to deduct any sum under section

40

852(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)—

 
 

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 9 — Manufactured payments

425

 

section 854 (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),

5

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.

854     

Cases where interest on underlying securities paid gross

10

(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.

15

(2)   

Section 852(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

855     

Manufactured overseas dividends: payments by UK residents etc

20

(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.

25

(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—

30

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

35

regulations under section 586 or 858.

856     

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

40

 
 

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 9 — Manufactured payments

426

 

(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—

5

(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

10

of the sum representing income tax which the payer would have been required

to deduct under section 855(2) if the payer had been UK resident.

(4)   

If the payer would not have been required to deduct any sum under section

855(2), the recipient is not required to account for and pay any income tax

under this section.

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(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 857 (power to reduce liability under this section).

20

(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.

857     

Power to reduce section 856 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 856.

25

(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

30

representative.

858     

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—

35

(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—

40

(a)   

prescribe the circumstances in which relevant amounts of tax suffered

may be set off against relevant tax liabilities, and

 
 

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 10 — Deduction from non-commercial payments by companies

427

 

(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

5

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

(c)   

amounts—

10

(i)   

deducted as a result of section 855, or

(ii)   

accounted for and paid as a result of section 856,

   

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

15

amounts deducted by the person as a result of section 855 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.

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Supplementary

859     

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.

25

(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.

860     

Regulation-making powers: general

Regulations under this Chapter may make different provision for different

30

cases.

Chapter 10

Deduction from non-commercial payments by companies

861     

Chargeable payments connected with exempt distributions

(1)   

This section applies to any payment chargeable to tax under section 214(1) of

35

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.

 
 

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 11 — Payments between companies etc: exception from duties to deduct

428

 

(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

5

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

10

Payments between companies etc: exception from duties to deduct

Introduction

862     

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

15

would otherwise be subject to specified duties to deduct sums representing

income tax under this Part.

(2)   

Section 863 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.

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(3)   

Section 864 confers power on an officer of Revenue and Customs to disapply

section 863 by direction.

(4)   

Section 865 defines “qualifying partnership”.

(5)   

Sections 866 to 870 make provision as to when a payment is an excepted

payment.

25

(6)   

Section 871 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

30

863     

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

35

reasonably believes that it is an excepted payment.

(2)   

The duties to deduct are those under—

(a)   

section 807(2) (certain payments of yearly interest),

(b)   

section 822(4) (payments in respect of building society securities),

 
 

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 11 — Payments between companies etc: exception from duties to deduct

429

 

(c)   

section 834(4) (annual payments made by persons other than

individuals),

(d)   

section 836(7) (patent royalties),

(e)   

section 839(5) (certain royalty payments etc where the owner lives

abroad),

5

(f)   

section 843(2) (proceeds of a sale of patent rights paid to non-UK

residents),

(g)   

section 852(2) (manufactured interest on UK securities: payments by

UK residents etc), and

(h)   

section 861(2) (chargeable payments connected with exempt

10

distributions).

(3)   

Subsection (1) has effect subject to any directions under section 864.

(4)   

Subsection (1) does not apply to a payment made by a company, or qualifying

partnership, acting as trustee or agent for another person.

864     

Power to make directions disapplying section 863

15

(1)   

An officer of Revenue and Customs may give a direction to a company, local

authority or qualifying partnership directing that section 863 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

20

(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.

25

(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.

865     

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.

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Excepted payments

866     

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.

867     

Non-UK resident companies

35

(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.

 
 

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 11 — Payments between companies etc: exception from duties to deduct

430

 

(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.

5

868     

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

10

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.

869     

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

15

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,

20

(c)   

a public office or department of the Crown other than one mentioned

in section 911(2),

(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

25

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

30

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

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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.

870     

Partnerships

40

(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.

 
 

 
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