Deduction of tax on yearly interest

tiemadmin • 16 October 2025

The tax legislation requires the deduction of tax from yearly interest that arises in the UK. This typically refers to interest that is subject to Income Tax or Corporation Tax.

The legislation requires the deduction of tax from yearly interest, if:

  • paid by a company, a local authority, a firm in which a company is a partner, or
  • paid by any person to another person whose usual ‘place of abode’ is outside the UK.

The tax must be deducted by the person or entity making the payment at the savings rate in force for the tax year in which the payment is made. In practice, the main circumstances where tax is deducted are where a company makes a payment of interest to an individual or other non-corporate person, or where interest is paid by a person (individual, trustee or corporate) to another person whose usual place of abode is outside the UK.

However, some exclusions apply. For example, interest paid by deposit takers, interest paid to a bank or building society, interest paid from UK public revenues or under the former Mortgage Interest Relief At Source (MIRAS) scheme. Companies, local authorities and ‘qualifying firms’ (a firm which includes a company or local authority as a partner) are also exempt from the requirement to deduct tax from interest paid to certain recipients.

It is important to note that statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998, is not classified as yearly interest and does not fall under these rules.

< Older Post

Newer Post >

Budgeting and forecasting in a period of lower confidence

by tiemadmin • 9 February 2026
Many business owners are entering the new year with a sense of caution. Confidence across the UK business community has softened, driven by continued cost pressures, uncertainty over tax policy and The post Budgeting and forecasting in a period of lower confidence appeared first on Feldon Accountancy.

Business rates support and cash flow for hospitality businesses

by tiemadmin • 9 February 2026
Hospitality businesses continue to operate in a challenging environment. Rising wage costs, energy prices and supply chain pressures have all placed strain on margins. Against this backdrop, recent The post Business rates support and cash flow for hospitality businesses appeared first on Feldon Accountancy.

Eligibility for Business Asset Disposal Relief

by tiemadmin • 5 February 2026
Business Asset Disposal Relief (BADR) can significantly reduce the Capital Gains Tax due when selling a business or shares, but with higher rates coming from April 2026, timing and eligibility matter The post Eligibility for Business Asset Disposal Relief appeared first on Feldon Accountancy.