Income Tax Act 2007 section 874

Duty to deduct from certain payments of yearly interest

Section 874 sets out the obligation to deduct income tax at source from certain payments of yearly interest arising in the United Kingdom.

• When yearly interest arises in the UK and is paid by a company, a local authority, a partnership that includes a company, or by any person to someone whose usual place of abode is outside the UK, the payer must deduct income tax at the basic rate for the relevant tax year before making the payment.
• Various exceptions to this deduction duty exist under sections 875 to 888E (for example, interest paid by building societies and other specified circumstances), and Chapter 11 addresses payments made between companies.
• Certain payments are specifically treated as yearly interest for these purposes: interest paid by a registered society on mortgages, loans, loan stock or deposits; dividends or other sums paid to shareholders of such societies by reference to their shareholding; and interest payable to an individual in respect of compensation, regardless of the period the interest covers.
• Payments made by a company or local authority acting in a fiduciary or representative capacity are not treated as payments by that company or local authority, and the location of any deed recording the obligation to pay interest is disregarded when determining whether the interest arises in the UK.