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»Ê¹ÚÌåÓýapp obligation to deduct tax at source from interest paid by deposit takers was repealed from 6 April 2016.

»Ê¹ÚÌåÓýappre are a number of circumstances in which the Tax Acts require a person making a payment to another person to deduct tax from that payment. Deduction of tax at source is commonly applied to savings and investment income. In particular, ‘deposit takersâ€� (mainly banks) and building societies and other ‘deposit takersâ€� must deduct tax from interest paid on investments, and other ‘personsâ€� must deduct tax from ‘yearly interestâ€� and from ‘annual paymentsâ€� in certain circumstances.

»Ê¹ÚÌåÓýappse obligations are now brought together in Part 15 of the Income Tax Act 2007, and apply to all types of payment from which tax is to be deducted at source, except those covered by PAYE or the Construction Industry Scheme. Part 15 also sets out the machinery under which tax deducted is collected.

Income tax is deducted from interest at the basic rate in force for the tax year in which the payment is made, or at the savings rate for years up to and including 2007-08 (SAIM1080). Income tax deducted from annual payments and patent royalties (SAIM9120) is at the basic rate, even for years in which the savings rate was in force. »Ê¹ÚÌåÓýapp tax deducted is treated as if it were tax paid by the recipient of the income (ITA07/S848).

Deposit takers

»Ê¹ÚÌåÓýapp obligation on deposit takers and building societies to deduct tax is set out in Chapter 2 of Part 15. See SAIM9020.

‘Yearly interest� and ‘annual payments�

Persons (including individuals and companies), other than deposit takers and building societies, who pay ‘yearly interest� or make ‘annual payments� must deduct tax under the rules in Chapter 3 and Chapter 6 of Part 15 respectively. See SAIM9040 onwards. Annual payments are explained at SAIM8000 onwards.

Deduction of tax by companies and individuals who are traders

Guidance on payments made by companies, and the circumstances in which they must deduct tax, is set out in the Company Taxation Manual (CTM35000 onwards). »Ê¹ÚÌåÓýapp guidance in the Savings and Investment Manual applies only to payments made by non-corporate persons, in effect individuals and trustees.

You should consult the Business Income Manual for guidance on payments made by individuals who are traders. See in particular BIM45650 (interest).

Interest treated as a distribution under CTA2010/S1000 (formerly ICTA88/S209(2)

Where CTA2010/S1000 applies to treat interest paid by the issuer of a security as a distribution for Corporation tax purposes, there is no requirement to deduct income tax at source on the interest treated as a deemed distribution. For more information see CTM 15000 onwards.