The qualifying criteria
Three things need to happen for CT61 to apply:
- You company is borrowing the money
- From a natural (i.e. real) person or a foreign entity, &
- Interest is actually paid
If you have a tick on all three of these, CT61 applies.
What does that mean
Firstly, we need to be informed of this and we need to register your company.
Everything can be done online with HMRC – except this. It is the last hammer and chisel, stone age system HMRC has.
A quarterly return is needed to be submitted for each quarter where an interest payment was made. The quarterly periods are:
- 1 January à 31 March
- 1 April à 30 June
- 1 July à 30 September
- 1 October à 31 December
We charge £60 per return and a return is only needed where a payment to an Angel has been made.
How is your Angel affected?
You Angel will get 80% of the interest that is due to them.
The other 20% you need to hold onto.
Within 7 days of the quarter end, you need to pay over the 20% to HMRC using the specific reference we give you to that they can allocate the payment.
But, But, But….
And we have heard lots of but’s here – it’s not interest, its only for a few weeks, etc…
Included in these stories (and from a very well-known property coach) is the idea to call it a fee and not interest. CT61 covers a lot more than interest and this would be covered by it to.
Given how crucial Angels are to what we do, we have consulted HMRC directly in this regard and there is no loopholes or escape clauses here (or at least none that we could figure out!)
It is what it is – we’ll help with the administration and you have got to just factor it in to your business and keep focusing on building your asset column.
So, what happens?
You pay the Angel 80% and the 20% balance within 7 days of quarter end to HMRC.
At the end of the self-assessment tax year, we will produce a certificate for you to provide to your Angels as to the tax that they have suffered. They will then include that in their personal tax return and effectively owe HMRC less money as your company has already paid over some funds on account for them.
What happens if my Angel doesn’t do self-assessment tax returns?
They may have already paid the right amount of tax so there might be nothing more to do.
If they don’t earn much and are on a very low income, they can call up HMRC at year end, with the certificate in their hand, and provide the details. Where a refund is due, HMRC will then issue them a cheque for the tax over-collected.
Why all the fuss?
It probably won’t surprise you that the Queen is well aware of individuals conveniently forgetting about the interest income they have received and thus not declaring it. This is tax evasion and HMRC take a dim view on this.
For some reason, a loan from and individual to an individual or from a company to a company is not subject to CT61. There is some logic to this – but it is beyond me!
A final note
In this economic environment, most people are earning almost nothing on their savings – even if they have a considerable amount in the bank.
There is a certain amount of interest that can be earned tax free (depending on you circumstances and other income) so in most cases an Angel will be due a little bit of tax back if for no other reason than there is this tax-free element that is unused.
