BIM65805 - Measuring the profits (particular trades): solicitors: bank interest received - solicitors’ rules
Bank and building society interest on deposits of clients' money should be dealt with as follows:
- Designated clients' deposit account. The client is entitled to the interest arising on the account and depending upon the status of the client the interest may be paid gross or net. The solicitor will simply pass on the interest gross or net to the client.
- Undesignated deposit accounts. Deduction of tax does not apply to interest on an undesignated (general) client account.
Where money is deposited into an undesignated client account the interest arises and is chargeable to the solicitor under ITTOIA/S369. At the same time the solicitor owes his or her clients an amount corresponding to the funds deposited, and will account to each client for interest thereon. Interest paid by the solicitor is chargeable on the client under ITTOIA/S369. The solicitor will be required to deduct tax only if [ITA07/S874 (1)(d)] applies, i.e. where the interest is both ‘yearly’, and paid to a client whose usual place of abode is overseas.
The solicitor is to be assessed under ITTOIA/S369 only on the net interest retained in the year. Where the amount paid to clients exceeds the interest received the excess may be allowed as a deduction in computing the profits arising from the profession.
The tax treatment of the interest in the hands of the client is explained at SAIM2000+.