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Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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(2) Regulations under this section may--

(a) make different provision for different descriptions of UK public revenue dividend and for different circumstances, and

(b) contain incidental, supplemental, consequential and transitional provision and savings.

(3) The Commissioners for Her Majesty's Revenue and Customs must not make any regulations under this section unless a draft of them has been laid before and approved by a resolution of the House of Commons.



Chapter 6 Deduction from annual payments and patent royalties

Introduction

898 Overview of Chapter

(1) This Chapter deals with the deduction of sums representing income tax from--

(a) qualifying annual payments, and

(b) royalties or other sums paid in respect of the use of patents.

(2) See also--

(a) Chapter 11 (payments between companies etc) for an exception from the duties to deduct sums representing income tax under this Chapter,

(b) Chapter 4 of Part 8, which gives relief for certain payments from which sums representing income tax must be deducted under this Chapter, and

(c) section 615(3) of ICTA (exemption from tax in respect of certain pensions) which contains a further exception from the duties to deduct sums representing income tax under this Chapter.

(3) If a payment to which a provision of this Chapter applies is also one to which section 906 applies, it is treated as not being a payment to which a provision of this Chapter applies.

899 Meaning of "qualifying annual payment"

(1) In this Chapter "qualifying annual payment" means an annual payment that meets the conditions in subsections (2) to (5).

(2) The payment must arise in the United Kingdom.

(3) If the recipient is a person other than a company, the payment must be--

(a) a payment charged to income tax under--

(i) Chapter 7 of Part 4 of ITTOIA 2005 (purchased life annuity payments),

(ii) section 579 of that Act (royalties etc from intellectual property),

(iii) Chapter 4 of Part 5 of that Act (certain telecommunication rights: non-trading income), or

(iv) Chapter 7 of Part 5 of that Act (annual payments not otherwise charged), or

(b) a payment charged to income tax under Part 9 of ITEPA 2003 because section 609 or 611 of that Act applies to it (certain employment-related annuities).

(4) If the recipient is a company, the payment must be--

(a) a payment charged to income tax as mentioned in subsection (3)(a), or

(b) a payment charged to corporation tax under Case III of Schedule D.

(5) The payment must not be--

(a) interest,

(b) a qualifying donation as defined in section 339 of ICTA (donations to charity by companies),

(c) a payment which is a qualifying donation for the purposes of Chapter 2 of Part 8 (gift aid),

(d) a payment in relation to which income tax is treated as having been paid under section 494(3) (income tax treated as paid by beneficiary or settlor in relation to discretionary trust),

(e) a payment which would fall within paragraph (d) but for the fact that the trustees making the payment are non-UK resident, or

(f) an annual payment to which section 904 applies (annual payments for dividends or non-taxable consideration).



Duty to deduct from annual payments

900 Deduction from commercial payments made by individuals

(1) This section applies to any payment made in a tax year if--

(a) it is a qualifying annual payment,

(b) the person who makes it is an individual, and

(c) it is made for genuine commercial reasons in connection with the individual's trade, profession or vocation.

(2) The individual must, on making the payment, deduct from it a sum representing income tax on it at the basic rate in force for the tax year.

(3) Income tax equal to the sum required to be deducted is to be collected through the individual's self-assessment return (see Chapter 17).

901 Deduction from annual payments made by other persons

(1) This section applies to any payment made in a tax year if--

(a) it is a qualifying annual payment, and

(b) the person who makes it is not an individual.

(2) But this section does not apply if--

(a) an individual's personal representatives make the payment,

(b) the individual would have been liable to make it if the individual had not died, and

(c) the payment would not have been made for genuine commercial reasons in connection with the individual's trade, profession or vocation, had it been made by the individual.

(3) If the person who makes the payment has some modified net income for the tax year (see section 1025)--

(a) the person must, on making it, deduct from it a sum representing income tax on it at the basic rate in force for the tax year, and

(b) income tax equal to the sum required to be deducted is to be collected through the person's self-assessment return (see Chapter 17).

(4) If the person who makes the payment has no modified net income for the tax year the person by or through whom the payment is made must, on making it, deduct from it a sum representing income tax on it at the applicable rate (see section 902).

(5) For provision about the collection of income tax in respect of a payment from which a sum must be deducted under subsection (4)--

(a) see Chapter 15 if the person making the payment is a UK resident company, and

(b) otherwise see Chapter 16.

902 Meaning of "applicable rate" in section 901

(1) This section gives the meaning of "applicable rate" in section 901(4).

(2) Except in the case dealt with in subsection (3), the applicable rate is the basic rate in force for the tax year in which the payment is made.

(3) If the payment--

(a) is an annuity payment under a purchased life annuity, and

(b) meets the condition in subsection (4),

the applicable rate is the savings rate in force for the tax year in which the payment is made.

(4) The condition is that the payment either--

(a) is savings income, or

(b) would be savings income, if it were the income of an individual within the charge to income tax.

(5) In this section "purchased life annuity" has the meaning given by section 423 of ITTOIA 2005.



Duty to deduct from patent royalties

903 Deduction from patent royalties

(1) This section applies to any payment made in a tax year if--

(a) it is a payment of a royalty or other sum in respect of the use of a patent, and

(b) it meets the conditions in subsections (2) to (4).

(2) The payment must not be--

(a) a qualifying annual payment, or

(b) an annual payment to which section 904 applies (annual payments for dividends or non-taxable consideration).

(3) The payment must arise in the United Kingdom.

(4) The payment must be one that is charged to income tax or corporation tax.

(5) If the person who makes the payment is an individual--

(a) the person must, on making the payment, deduct from it a sum representing income tax on it at the basic rate in force for the tax year, and

(b) income tax equal to the sum required to be deducted is to be collected through the person's self-assessment return (see Chapter 17).

(6) If the person who makes the payment is not an individual, and has some modified net income for the tax year (see section 1025)--

(a) the person must, on making the payment, deduct from it a sum representing income tax on it at the basic rate in force for the tax year, and

(b) income tax equal to the sum required to be deducted is to be collected through the person's self-assessment return (see Chapter 17).

(7) If the person who makes the payment--

(a) is not an individual, and

(b) has no modified net income for the tax year,

the person by or through whom the payment is made must, on making it, deduct from it a sum representing income tax on it at the basic rate in force for the tax year.

(8) See Chapter 8 which makes special provision in relation to royalties (double taxation arrangements: deduction at treaty rate and EU companies: discretion to pay gross).

(9) For provision about the collection of income tax in respect of a payment from which a sum must be deducted under subsection (7)--

(a) see Chapter 15 if the person making the payment is a UK resident company, and

(b) otherwise see Chapter 16.



Supplementary

904 Annual payments for dividends or non-taxable consideration

(1) For the purposes of section 899(5)(f) and 903(2)(b) this section applies to an annual payment which meets the conditions in subsections (2) to (7).

(2) The payment must be a payment charged to--

(a) income tax under Part 5 of ITTOIA 2005, or

(b) corporation tax under Case III of Schedule D.

(3) The payment must be made under a liability incurred for consideration in money or money's worth all or any of which--

(a) consists of a dividend or the right to receive a dividend, or

(b) is not required to be brought into account in calculating for the purposes of income tax or corporation tax the income of the person making the payment.

(4) The payment must not be a payment of income--

(a) which arises under a settlement made by one party to a marriage or civil partnership by way of provision for the other--

(i) after the dissolution or annulment of the marriage or civil partnership, or

(ii) while they are separated under an order of a court, or under a separation agreement, or if the separation is likely to be permanent, and

(b) which is payable to, or applicable for the benefit of, the other party.

(5) The payment must not be made by an individual for genuine commercial reasons in connection with the individual's trade, profession or vocation.

(6) The payment must not be made to an individual under a liability incurred at any time in consideration of the individual surrendering, assigning or releasing an interest in settled property to or in favour of a person with a subsequent interest.

(7) The payment must not be a payment of an annuity granted in the ordinary course of a business of granting annuities.

(8) In the application of this section to Scotland the reference in subsection (6) to settled property is to be read as a reference to property held in trust.

905 Interpretation of Chapter

In this Chapter "individual" includes a Scottish partnership if at least one partner is an individual.



Chapter 7 Deduction from other payments connected with intellectual property

Certain royalties etc where usual place of abode of owner is abroad

906 Certain royalties etc where usual place of abode of owner is abroad

(1) This section applies to any payment made in a tax year if--

(a) it is a payment of any royalties, or sums payable periodically, in respect of a relevant intellectual property right (see section 907),

(b) it is one that is charged to income tax or corporation tax, and

(c) condition A or B is met.

(2) Condition A is that the usual place of abode of the owner of the right is outside the United Kingdom.

(3) Condition B is that--

(a) a person ("the seller") has assigned the right to another person,

(b) the usual place of abode of the seller is outside the United Kingdom,

(c) the seller is entitled to periodical payments in respect of the right, and

(d) the payments are in respect of that entitlement.

(4) But this section does not apply if the payment is made in respect of copies of works, or articles, which have been exported from the United Kingdom for distribution outside the United Kingdom.

(5) The person by or through whom the payment is made must, on making it, deduct from it a sum representing income tax on it at the basic rate in force for the tax year.

(6) See--

(a) Chapter 8 which makes special provision in relation to royalties (double taxation arrangements: deduction at treaty rate and EU companies: discretion to pay gross), and

(b) Chapter 11 (payments between companies etc) for an exception from the duty to deduct sums representing income tax under this section.

(7) For provision about the collection of income tax in respect of a payment from which a sum must be deducted under this section--

(a) see Chapter 15 if the person making the payment is a UK resident company, and

(b) otherwise see Chapter 16.

(8) If a payment to which this section applies is also one to which a provision of Chapter 6 applies, it is treated as not being a payment to which a provision of Chapter 6 applies.

907 Meaning of "relevant intellectual property right"

(1) In section 906 "a relevant intellectual property right" means--

(a) a copyright,

(b) a right in a design, or

(c) the public lending right in respect of a book.

(2) In this section--

  • "copyright" does not include copyright in--

    (a)

    a cinematographic film or video recording, or

    (b)

    the sound-track of a cinematographic film or video recording, except so far as it is separately exploited,

  • "a right in a design" means the design right in a design, or the right in a registered design.

908 Royalty payments etc made through UK resident agents

(1) If--

(a) a payment to which section 906 applies is made through an agent who is UK resident, and

(b) the agent is entitled as against the owner of the right to deduct a sum as commission for services provided,

section 906(5) and Chapters 8 (deduction at special rates), 15 and 16 (collection) apply as if the amount of the payment were the amount net of the sum deductible as commission.

(2) But if the person by or through whom the payment is made does not know the commission is payable, or does not know its amount--

(a) the sum representing income tax required to be deducted under section 906 must be calculated in the first instance on the total amount of the payment, and

(b) the return to be made under Chapter 15 or the account of the payment under Chapter 16, must be based on that total amount.

909 Royalty payments: further provision

(1) A payment to which section 906 applies is treated for all income and corporation tax purposes as made when it is made by the first person who makes it, not when it is made by or through any other person.

(2) If, under section 906, a sum representing income tax must be deducted from a payment, any agreement to make the payment without deduction of that sum is void.

(3) Section 906--

(a) applies to payments on account of royalties as it applies to payments of royalties, and

(b) applies to payments on account of sums payable periodically as it applies to payments of sums payable periodically.



Proceeds of a sale of patent rights

910 Proceeds of a sale of patent rights: payments to non-UK residents

(1) This section applies if a non-UK resident sells the whole or part of any patent rights and is chargeable in respect of the sale--

(a) to income tax under section 587 of ITTOIA 2005, or

(b) to corporation tax under section 524(3) of ICTA.

(2) The person by or through whom the proceeds of the sale are paid must, on making any payment of--

(a) the proceeds, or

(b) an instalment of the proceeds,

deduct from it a sum representing income tax on the chargeable amount at the basic rate in force for the tax year in which the payment is made.

(3) In subsection (2) "the chargeable amount" means--

(a) so much of the proceeds or instalment as consists of a capital sum, less

(b) any incidental expenses of the sale which are deducted before payment.

(4) Sections 597 to 599 of ITTOIA 2005 (licences connected with patents etc) apply for the purposes of this section as they apply for the purposes of sections 587 to 596 of that Act.

(5) Section 4 of CAA 2001 (meaning of "capital sums" etc) applies in relation to this section as it applies in relation to that Act.

(6) For further provision about the sum required to be deducted, see--

(a) section 595 of ITTOIA 2005 (certain rules affecting the seller's income tax position do not affect the amount to be deducted), and

(b) section 524(9) of ICTA (certain rules affecting the seller's corporation tax position do not affect the amount to be deducted).

(7) See Chapter 11 (payments between companies etc) for an exception from the duty to deduct sums representing income tax under this section.

(8) For provision about the collection of income tax in respect of a payment from which a sum must be deducted under this section--

(a) see Chapter 15 if the person making the payment is a UK resident company, and

(b) otherwise see Chapter 16.



Chapter 8 Chapters 6 and 7: special provision in relation to royalties

Deduction at special rates

911 Double taxation arrangements: deduction at treaty rate

(1) This section applies if--

(a) a company pays a royalty from which it is required to deduct a sum representing income tax under Chapter 6 or 7,

(b) the income tax in respect of the payment is collectible under Chapter 15 or 16, and

(c) the company reasonably believes that, at the time the payment is made, the payee is entitled to relief in respect of the payment under double taxation arrangements.

(2) The company may calculate the sum to be deducted from the payment under Chapter 6 or 7 by reference to the treaty rate.

(3) But, if the payee is not at the time entitled to such relief, this Part has effect as if subsection (2) had never applied in relation to the payment.

(4) In this section "the treaty rate" means the rate of income tax appropriate to the payee under the arrangements.

912 Power to make directions disapplying section 911

(1) This section applies if an officer of Revenue and Customs is not satisfied that the payee will be entitled to relief under double taxation arrangements in respect of one or more payments of royalties that a company is to make.

(2) The officer may direct the company that section 911 is not to apply to the payment or payments.

(3) A direction under subsection (2) may be varied or revoked by a later direction.

913 Interpretation of sections 911 and 912

(1) In sections 911 and 912 "royalty" includes--

(a) a payment received as consideration for the use of, or the right to use, a copyright, patent, trade mark, design, process or information, and

(b) the proceeds of the sale of the whole or part of any patent rights.

(2) In sections 911 and 912 "payee" means the person beneficially entitled to the income in respect of which the payment is made.



Discretion to make payments gross

914 EU companies: discretion to make payment gross

(1) This section applies if--

(a) a company makes a royalty payment and, at the time the payment is made, the company reasonably believes that the payment is exempt from income tax as a result of section 758 of ITTOIA 2005 (exemption for certain interest and royalty payments), but

(b) there is a duty to deduct a sum representing income tax from the payment under section 903(7) or 906 if the payment is not in fact exempt.

(2) The company may make the payment without deducting a sum representing income tax under section 903(7) or 906 (as the case may be).

(3) But if the payment is not in fact exempt from income tax as a result of section 758 of ITTOIA 2005, this Part has effect as if subsection (2) had never applied in relation to the payment.

915 Power to make directions disapplying section 914

(1) This section applies if an officer of Revenue and Customs is not satisfied that one or more payments to be made by a company will be exempt from income tax as a result of section 758 of ITTOIA 2005 (exemption for certain interest and royalty payments).

(2) The officer may direct the company that section 914 is not to apply to the payment or payments.

(3) A direction under subsection (2) may be varied or revoked by a later direction.

916 Duty of payee to notify if payment not exempt

(1) This section applies if before a payment of a royalty is made, the company beneficially entitled to the income in respect of which the payment is to be made--

(a) believed that the payment was exempt from income tax as a result of section 758 of ITTOIA 2005 (exemption for certain interest and royalty payments), but

(b) has subsequently become aware that any of conditions A to C in that section have ceased to be met.

(2) The company must without delay notify--

(a) an officer of Revenue and Customs, and

(b) the company which is to make the payment.

917 Supplementary

(1) If section 763 of ITTOIA 2005 (special relationships) applies, sections 914 to 916 have effect in relation to only so much of the payment as does not exceed the arm's length amount (within the meaning of that section).

(2) Expressions used in sections 914 to 916 and in sections 757 to 767 of ITTOIA 2005 have the same meaning in sections 914 to 916 as in those sections.



Chapter 9 Manufactured payments

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Manufactured dividends

918 Manufactured dividends on UK shares: Real Estate Investment Trusts

(1) This section applies if--

(a) a person pays a manufactured dividend as mentioned in section 573(1), and

(b) the manufactured dividend is representative of a dividend which is--

(i) paid by a company to which Part 4 of FA 2006 applies (Real Estate Investment Trusts) in respect of profits of C (tax-exempt), or

(ii) paid by the principal company of a group to which that Part applies in respect of profits of G (property rental business).

(2) This section applies only so far as the manufactured dividend is representative of such a dividend.

(3) If the payer--

(a) is UK resident, or

(b) pays the manufactured dividend in the course of a trade carried on through a branch or agency in the United Kingdom,

regulations under section 973 apply to the payer as they apply to a company to which Part 4 of FA 2006 applies, with any necessary modifications.

(4) The Treasury may by regulations provide, in a case where the payer--

(a) is non-UK resident, and

(b) pays the manufactured dividend otherwise than in the course of a trade carried on through a branch or agency in the United Kingdom,

for a United Kingdom recipient of the manufactured dividend to be liable to account for and pay income tax in respect of it.

(5) A United Kingdom recipient is a recipient who--

(a) is UK resident, or

(b) is non-UK resident but receives the manufactured dividend for the purposes of a trade carried on by the recipient through a branch or agency in the United Kingdom.

(6) The amount of income tax which the recipient may be liable to account for and pay under regulations under subsection (4) is equal to the amount of the sum representing income tax which the payer would have been required to deduct in accordance with regulations under section 973.

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