DT1912 - Non-residents: UK income: Returns and reports: Enquiries by FICO - domestic law

ICTA88/S18 sets out the basic charge to tax on income which falls within Schedule D, but does not itself contain any territorial limitation on United Kingdom taxing rights.

Section 18(1) provides that tax under Schedule D shall be charged in respect of, among other things, all interest of money, annuities and other annual profits or gains not charged under Schedule A or E, and not specially exempted from tax.

Case III of Schedule D specifically charges tax in respect of any interest, annuity or other annual payment, whether such payment is payable within or out of the United Kingdom.

ICTA88/S349 provides for the deduction of Income Tax from certain royalty payments which are not payable, or not wholly payable, out of profits or gains brought into charge to Income Tax. Section 349(1) provides

`Where

a) any ... annual payment charged with tax under Case III of Schedule D, not being interest
or
b) any royalty or other sum paid in respect of the user of a patent; ...

is not payable or not wholly payable out of profits or gains brought into charge to Income Tax, the person by or through whom any payment thereof is made shall, on making the payment, deduct out of it a sum representing the amount of income tax thereon'.

An annual payment is

• paid under a legal obligation
• capable of being annually recurring
• pure income profit in the hands of the recipient.

ICTA88/S536 and ICTA88/S537B apply Section 349(1) (with certain exceptions) to royalties and other periodical payments in respect of copyrights or registered designs where the usual place of abode of the owner of the copyright, or of the right in the design, is not within the United Kingdom. See IM4000 - IM4300 for details.

In summary, where a United Kingdom resident makes a payment which is

• an annual payment, which is not payable out of profits or gains brought into charge to Income Tax

or

• a royalty payment in respect of a user of a patent, which is not payable out of profits or gains brought into charge to Income Tax

or

• a copyright or registered design royalty within Section 536 or Section 537B

the United Kingdom payer has to deduct Income Tax.

(NOTE: unless the patent is a United Kingdom patent, the licence to use it cannot be for `the user of a patent' for ICTA88 purposes.)