Withholding tax on payments of interest

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Withholding tax on payments of interest
  • Payments made net
  • Payments made gross

When a company pays interest it may, in certain situations be obliged to withhold tax at source and pay it over to HMRC. The rate of tax to be withheld is the basic rate (currently 20%). As HMRC is only concerned to collect tax that may otherwise be difficult to chase, there are various exemptions and reliefs from the requirement to withhold. Where a payment falls within these exemptions / reliefs the payment can be made gross.

Payments made net

As mentioned above companies will have to withhold tax at source (at 20%) on certain interest payments and pay the tax over to HMRC. The main instances where companies may have to deduct income tax at source from interest are:

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