BIM40810 - Receipts: Interest and dividends: How chargeable

Where interest or a dividend satisfies at least one of the three tests set out in BIM40805 and so has the character of a trade receipt it is then necessary to consider further whether it:

• may actually be taxed as a trade receipt under Case I or II of Schedule D for all purposes, or
• should be taxed under another head of charge, for example Schedule A or Case III of Schedule D, but may be regarded as a trade receipt solely for the purpose of giving relief for trading losses.

The relief for trading losses may be by virtue of ICTA88/S385 (4) (income tax losses - BIM75400 onwards) or ICTA88/S393 (8) (CT losses - CTM04000 onwards and CTM04500 onwards).

Trade receipt solely for loss relief purposes

Interest or a dividend with the character of a trade receipt falls within the first of the above categories if it fulfils any of the following conditions:

• It is paid under deduction of UK tax (subject to an exception concerning banks and financial concerns referred to below); see F S Securities Ltd v CIR [1964] 41TC666, and Bucks v Bowers [1969] 46TC267).
• The income is not trade interest or bank current account interest within BIM40805, and the recipient is neither a bank, nor an insurance company nor another financial concern. The authority here is the “Crown option”, that is its right to choose how to tax income which falls within more than one Case of Schedule D as explained further in BIM14035.
• The income in question is taxable under a head of charge other than Schedule D. This is because the schedules are mutually exclusive (Salisbury House Estate Ltd v. Fry [1930] 15TC266) and that other head of charge takes priority.

Trade receipt for all purposes

If the income does not fall within any of the three categories above then it should be treated as a trade receipt for all purposes.

In this situation the Crown option would be exercised to assess it as a trade receipt under Case I/II of Schedule D.

The types of income which will fall to be treated as a trade receipt for all purposes will be either:

• trade interest or bank current account interest within BIM40805 received by any type of Schedule D business without deduction of UK tax; or
• income of banks, insurance companies or other financial concerns.

Further guidance on how this treatment applies to general (that is non-life) insurance companies, companies carrying on a life assurance business, banks and financial concerns can be found in the General Insurance Manual, Life Assurance Manual or Banking Manual as appropriate.