HMRC guidance - Interest treated as a distribution

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13 October 2008

HMRC has published a briefing which confirms that withholding tax does not apply to interest which is re-categorised as a distribution.

In certain circumstances, interest payments made by a company can be reclassified as a distribution under s209 ICTA. In such cases the company cannot obtain a corporation tax deduction for the payment which is made. 

However, concern has arisen that, when the withholding tax provisions in ICTA were rewritten into the Income Tax Act 2007, they were rewritten in such a way that the requirement to withhold tax has been extended to such reclassified distributions (whereas under the old legislation it was clear that there was no such requirement).

HMRC Brief 47/08 makes it clear that HMRC's view is that there has been no such substantive change to the law and that there is no requirement to withhold tax from interest which is treated as a distribution.

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