• Skip to primary navigation
  • Skip to main content
  • Skip to footer

Top notice bar

Call us on 08000 388799

Avanti Tax Accountants HomepageAvanti Tax Accountants

Bookkeeping, Accountancy and Taxation services

  • Home
  • About Us
  • Our Services
    • Bookkeeping & Accountancy
    • Corporation & Personal Tax
    • Payroll & CIS
    • Company Secretarial Bureau
    • Budgeting, Forecasting & Business Valuations
    • Mentoring & Business Coaching
    • Software & Training
  • Our Accountants
  • News & Insights
  • Send An Enquiry
Home » News & Insights » Interest on Loans Made to a Company

Interest on Loans Made to a Company

Posted on 26th September 2019

Avanti has a company client that have taken a number of loans in recent years that remain outstanding, business is improving, and the company is going to start paying interest on those loans. They have a mixture of loans; one from the director, one from a UK company and one from a company abroad.

Does the company have to deduct tax before making the interest payments?

The duty to deduct tax in respect of interest payments will differ in each of the 3 scenarios so let’s have a look at each in turn.

The duty to deduct basic rate (20%) income tax is set out in legislation and imposes the duty to deduct income tax on ‘yearly’ interest paid in certain circumstances. There is no statutory definition of the term ‘yearly’ however, a useful discussion of the term can be found in various HMRC manuals.

  • In our first scenario, where the company is paying interest to an individual. The company will have to deduct basic rate tax and it will also have to complete and submit form CT61 within 14 days of the end of the quarter return period.
  • In the second scenario where the company is paying another UK resident company, the payment can be made gross of tax. It is worth noting that the guidance sets out an exception to this rule, for example when the person receiving the interest is only acting in the capacity of a nominee.
  • The third scenario involves a payment to a non-resident company. The basic position is that tax would need to be deducted at the basic rate. However, it is possible for a double taxation agreement (DTA) to override this basic position. That is to say that the obligation can be changed or removed where both a claim is made and the DTA allows for this. Often a DTA will allow for a reduced rate of tax to applied. The actual rate will vary country to country.

There is a requirement to make a claim, the treaty rate cannot simply be applied automatically. As the recipient is a non-resident company the claim is made via a form; ‘DT Company” which can be found here.

Alternatively, It is possible for a non-resident company to register for the Double Taxation Treaty Passport (DTTP) Scheme and then it would then be possible for the UK company to apply the treaty rate without the need to make an application.

Each DTA will bring its own peculiarities and the situation is a little more complex in respect of royalties. As such, we would ask that you call us to discuss these aspects further.

Finally, it is worth noting that the UK does not withhold tax in respect of dividends.[1]

[1] Reproduced with permission from Croner Taxwise

Share this post:

Share on TwitterShare on FacebookShare on LinkedInShare on E-mail

Filed Under: Exclusive News

Disclaimer:- The information contained herein is given by way of general guidance only and no action should be taken solely on the basis of the information contained herein. The Avanti Group (UK) Ltd will be pleased to provide further guidance on the issues, and how they might affect you. No liability is accepted by the firm for any action taken without seeking appropriate professional advice

Footer

Navigate

  • Find An Accountant
  • About Us
  • News & Insights
  • Privacy Policy
  • Letter Of Engagement

Our Services

  • Software & Training
  • Mentoring & Business Coaching
  • Budgeting, Forecasting & Business Valuations
  • Company Secretarial Bureau
  • Payroll & CIS
  • Corporation & Personal Tax
  • Bookkeeping & Accountancy

Get In Touch

Tel: 08000 388799
Send us an enquiry

  • Facebook
  • Instagram
  • Twitter
Copyright © 2023 Avanti Tax Accountants · All Rights Reserved
Part of The Maurice J Bushell & Co Ltd Franchise (UK) Ltd · Company Reg: 10407313 and The Avanti Group (UK) Ltd · Company Reg: 04635630 · Created by Purple Hippo
  • So we can contact you to discuss your enquiry
  • So a member of our team from your area can contact you
  • By clicking ‘Send Enquiry’ you agree to receive contact from Avanti Tax Accountants using the details given above. We respect your personal information and your privacy and will not share or sell your information to other organisations. Please read our Privacy Policy for more information.
  • This field is for validation purposes and should be left unchanged.