Understanding CT61 Requirements: A Guide for Companies

Companies are required to deduct basic rate income tax (currently 20%) at source and remit it directly to HMRC when making certain types of payment.

CT61 payments typically include:

• Annual interest on debentures or loan stock to individuals

• Annual payments or patent royalties to individuals

• Royalties on certain intellectual property to overseas persons

  
  

The tax deducted at source settles the income tax liability of the recipient, not that of the company making the payment.

Income Tax Suffered by Companies

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 receive interest, patent royalties, or annual payments from individuals, they will receive the income net of 20% income tax.

If a company has suffered income tax, it is relieved against its corporation tax liability.

This process mirrors how individuals receive credit for income tax deducted at source in their personal tax computations, where gross income is charged to tax, and any tax suffered at source is deducted from the tax liability at the bottom of the computation.

Quarterly Accounting and CT61 Returns

Companies must account for income tax on a quarterly basis using a CT61 return, based on amounts paid and received in the particular quarter. The standard quarterly periods are:

• 1 January to 31 March

• 1 April to 30 June

• 1 July to 30 September

• 1 October to 31 December

  
  

If a company’s year-end does not coincide with these dates, there will be five return periods, with the final period ending on the company’s accounting date. For example, a company with a year-end of 31 May will have the following return periods:

• 1 June to 30 June

• 1 July to 30 September

• 1 October to 31 December

• 1 January to 31 March

• 1 April to 31 May

  
  

The CT61 return and any tax due must be submitted to HMRC within 14 days following the end of the return period.

Settling Tax: Withheld vs. Suffered

For each CT61 quarter, the tax withheld from payments made (i.e., tax to be paid over to HMRC) is compared with the tax suffered on receipts received (i.e., tax which can be reclaimed from HMRC).

• If the tax withheld exceeds the tax suffered: The net amount is the amount of tax the company must pay over to HMRC for that quarter.

• If the tax suffered exceeds the tax withheld: A refund of tax is required from HMRC for that quarter.

  
  

However, HMRC will not repay more than the amount of tax that the company has already paid over so far in the accounting period. Any excess tax suffered is carried forward to a later quarter and deducted from the next payment due. If, by the end of the accounting period, the full amount of tax suffered has not been repaid, it is deducted from the company’s corporation tax liability. If the income tax suffered exceeds the corporation tax liability for the period, any balance will be repaid by HMRC.

Speak to an Expert

Accurate and timely submission of CT61 returns is crucial for compliance with HMRC regulations. Companies should ensure they understand their obligations regarding tax withheld and suffered, and maintain thorough records to support their claims. If you are unsure about your company’s CT61 obligations or would like assistance with preparing and submitting returns, please contact us and we will be happy to help you stay compliant and avoid unnecessary HMRC penalties.

Authored by: London Team