Chapter 32 Accounting for Income tax

Question 1

32.1 Income tax withheld

Answer 1

Where companies make certain payments, they must deduct basic rate income tax at source and pay it direct to HMRC. These payments include:
• Annual interest on debentures/loan stock to individuals
• Patent royalties to individuals
• Royalties on certain intellectual property to an overseas person
The tax deducted settles the income tax liability of the recipient, not of the company paying it.

Question 2

32.2 Income Tax suffered

Answer 2

Companies do not suffer income tax on amounts received from other UK companies and conversely, they do not withhold tax on payments to other UK companies. However if UK companies receives interest or patent royalties from individuals, they will receive the income net of 20% income tax. A company which has suffered income tax can relieve this against its corporation tax liability.

Question 3

32.3 Quarterly accounting

Answer 3

Companies must account for income tax on a quarterly basis, using a CT61 quarterly return. The quarters are 31 March, 30 June, 30 September and 31 December. If a company’s year end is different from any of these dates, there will be five return periods with the final period ending on the company’s accounting date.