When a limited company pays interest to a lender it is required to deduct tax from this payment unless the lender has permission to receive the sum gross. All of the major clearing Banks have this authority but directors and private individuals do not.
The reason for the deduction is to give the recipient a tax credit to set against the liability due on the money if they are a tax payer.
As a leading firm of Chartered Accountants in Essex Lambert Chapman LLP see the payment of interest as a useful source of income, particularly when the base rate is very low, and part of an overall package of earnings from their business. This may be particularly relevant if large bonuses or dividends are paid and reinvested back into the business in an effort to beat the upcoming 50% tax rate in April 2010.
The CT61Z form is required on a quarterly basis for months ended March, June, September and December with an extra form needed if the year end is not one of these months. It is used to set out the deductions made and sources of income paid by the Company and filed within 14 days of the quarter end.
Contact John on 01621 852191 or our office in Braintree if you would like to identify if interest payments on loan accounts or tax planning to establish a loan account is suitable for your circumstances.