Introduction to Withholding Tax (Income Tax Account)

The Tax Deduction Scheme for Interest (TDSI) is a scheme under which building societies, banks and other deposit-takers are required to deduct Basic Rate Tax (BRT) from interest on customer deposits. Basic Rate Tax (BRT) applies to the payment of credit interest to individuals ordinarily resident in the UK who has not submitted an R85 certificate.

BRTapplies to all deposits, including current accounts, unless the client is:

• A company.
• One or a number of trusts.
• Non-resident in the United Kingdom.
• A UK resident who has submitted an R85 certificate indicating that he or she is not subject to TDSI (this is known as de-registration).

If an account has accrued credit and debit interest, for example, in case of a current or overdraft account, only the credit interest is used to determine the BRT amount and not the net of the credit and debit interest.

The BRT applicable indicator is set in the customer record to indicate whether the customer is subject to BRT. In addition to the BRT applicable indicator at the customer level, a further indicator is also available at the account level. This allows the user to specify that the account is to be exempt from BRT even though the client is liable to BRT. This indicator is for accounts specified as exempt, that is, in cases of de-registration, for example, for cash awaiting investment in Personal Equity Plan (PEP) or joint account holders.