In addition to the specific exceptions to the obligation to
deduct which are described in more detail in
INTM505030 (double taxation
agreements),
INTM505040 (exemptions) and
INTM505050 (Eurobonds), there are
certain payments to which withholding does not apply.
There is no obligation to deduct tax from payments which are
not interest. For example, a discount is not interest and there is
no obligation to deduct, even though the discount is compensation
for the use of money. However, HM Revenue & Customs would not
slavishly follow legal form and would want to be satisfied that
unconnected persons would have entered into discounting
arrangements.
There is no obligation to deduct tax from interest which is
not yearly interest.
HM Revenue & Customs in a number of instances has
considered the question of whether interest payments fall within
the definition of yearly interest. There is relevant guidance in
the discussion of repo price differentials, which are deemed to be
interest, at. Guidance on the treatment of interest payments made
under the terms of The Late Payment of Commercial Debts (Interest)
Act 1998 is given in Tax Bulletin TB42I.
