There are a limited number of circumstances where a Company makes a payment to an individual and is required by HMRC to deduct basic rate tax from the payment.
For most small businesses, this requirement usually relates to the payment of interest to directors on monies that they have lent to the company on directors loan account.
It is perfectly legal for a company to pay interest to its directors on monies they have lent to the company at commercial rates.
It is usual for these loans to be unsecured and for there to be no set time for repayment and hence the directors can charge a rate commensurate with the rates charged by banks for unsecured borrowings.
However, there is paperwork attached to the payment of this interest since when the company pays the interest it must deduct basic rate tax at the rate of 20% from the interest due.
So what happens to the tax deducted? Well the company has an obligation to then file a return and make payment of the tax to HMRC within 14 days of the end of the quarter in which the interest is paid.
Here at JacRox we have systems in place to ensure that you do not miss these deadlines. If you believe, your directors are entitled to interest on their loan then please ask us about this service on 0800 020 9542.