259 Alternative amount on account of appropriate tax

Summary

This section counters the effect on the yield from DIRT of the special crediting of deposit interest made by certain financial institutions just before the introduction of DIRT on 6 April 1986.

Section 259 applies to a deposit-taker if the amount of DIRT payable in respect of interest paid or credited by it in a year of assessment is less than the amount of tax appropriate to the interest which accrued on the deposits held by it in a specified period of 12 months.

The 12 month period ends on the deposit-takers latest general crediting date in the year of assessment or, if it has no general crediting date, on the last day of that year.

Where section 259 applies to an institution in respect of a year of assessment, its October payment on account of DIRT for the following, and each succeeding, year of assessment is determined by calculating the DIRT on 12 months’ interest accruing to 30 September in the year of assessment and then reducing the resultant amount by the payments on account made in the previous January, April and July.

Details

(1)(a) For the purposes of the section, interest is treated as accruing “from day-to-day”. The effect of this is that even if entitlement to receipt of interest arises only on fixed dates at, say, 6 monthly or yearly intervals, the interest due on the deposit can still be apportioned to periods ending on dates other than those fixed crediting or payment dates.

(1)(b) In the section references to “general crediting date” are to be taken as references to a date on which a financial institution credits interest to the majority of the deposit accounts held by it. The reference to “majority” is necessary to cater for the situation where all deposits might not be credited with interest on the same date. For instance, some forms of deposit might involve monthly interest cheques, or might be credited with interest only when they are uplifted or at a specified interval following the opening of the deposit. The qualification contained in brackets establishes that a relevant deposit is to be treated as credited with interest whether or not that interest is then added to the capital for the purposes of the next crediting of interest.

(2) Where the DIRT due and payable by a financial institution for any year of assessment in respect of interest paid or credited in that year is less than the notional tax due in respect of interest accrued on deposits held by it in a specified period of 12 months ending in that year of assessment, the modified method of calculating the October payment on account provided for in this section applies on a continuing basis in each subsequent year of assessment. In short, the section in general applies where a financial institution would be liable for DIRT on less than 12 months interest in any year of assessment.

The period of 12 months can vary depending on the circumstance. The period of 12 months is to end on the “general crediting date” of the institution if there is only one such date in the year of assessment. The period of 12 months is to end on the last such date if there is more than one general crediting date in the year. Where financial institutions have no general crediting date in a year of assessment (for instance, a bank which has predominantly short-term deposits with random dates for credits), the 12 month period is to end on the last day of the year of assessment, that is, 31 December.

(3) Where this section applies to a financial institution for any tax year, the amount of the interim payment on account is no longer determined in accordance with section 258(4). Instead, for that tax year and for all subsequent tax years, the interim payments on account are calculated by reference to subsection (4). Where the payment is to be so calculated, references in the Tax Acts (other than in this section) to section 258(4) are equated to references to subsection (4). This is necessary so as to apply to payments on account due under subsection (4) certain references in this Chapter to payments on account of DIRT due in accordance with section 258(4). These references are in —

• section 256(1) which is concerned, in effect, with defining the payment on account,
• section 258(5) which provides that the payment on account is payable without the necessity for raising an assessment,
• section 258(8)(a) which establishes that the due date for assessed DIRT (in the event that an assessment must be raised) is one month after the date of the assessment. [However, the due date so established cannot displace an earlier due date for a payment on account under section 258(4). Even if the assessment is appealed, the earlier due date continues to apply.]

(4)(a)(i) Where this section applies to a financial institution for a year of assessment, the payments on account for that year are to be calculated in accordance with the formula in the Table to this subsection

The interim payments on account must be made within 21 days of each of the following dates

• (4)(a) 31 March
• 30 June
• 30 September

(i) The Table sets out the formula for calculating the payment on account under this subsection. The formula is —

A – (B – C)

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where

A	is the amount of DIRT which would be payable by a deposit taker if all the interest accruing in the 12 months ending on the relevant quarterly date in the year of assessment were actually paid or credited in the year of assessment.
B	is the amount of DIRT payable by the deposit taker in respect of interest actually paid or credited in the preceding year of assessment.
C	is the lesser of the amount at B and the amount treated in accordance with this subsection or section 258(4) as paid by the relevant deposit taker on account of the appropriate tax due and payable by it for the year of assessment preceding the relevant year.

(ii) Subparagraph (ii) provides that notwithstanding section 258(3), the aggregate of the interim amounts on account of appropriate tax due in accordance with subparagraphs (i) and (iii) should not be less than the amount produced by the formula:

A – (B – C)

where

A	is the amount of appropriate tax which would be due and payable for the year of assessment in accordance with section 258(3) if the total amount of the relevant interest which had accrued in the period of 12 months ending on 30 September in the relevant year on all relevant deposits held by the relevant deposit taker in that period (and no more) had been paid by in the relevant year,
B	is the amount of appropriate tax which was due and payable by the deposit taker for the year of assessment preceding the relevant year in accordance with section 258(3) and
C	is an amount equal to the lesser of the amount at B and the amount treated, in accordance with this subsection or section 258(4), as paid by the relevant deposit taker on account of the appropriate tax due and payable by it for the year of assessment preceding the relevant year.

(iii) This subparagraph provides that, where for any year of assessment, the amount computed in accordance with subparagraph (ii) exceeds the aggregate of the amounts computed in accordance with subparagraph (i) and, without prejudice to the obligation to pay any amount computed in accordance with subparagraph (i), that excess must be paid to the Collector General within 21 days of 30 September in that year of assessment and shall be treated as far as may be as a payment on account of any appropriate tax due and payable by it for that year of assessment under section 258(3).

(4)(b) In the unlikely event of the aggregate payments on account (which are calculated on the basis of accrued interest) exceeding the liability for the tax year which is determined by reference to interest paid or credited in the year, the excess is to be carried forward as a credit against the payment due for the following tax year. Any remaining balance is to be set against the next quarterly payment and so on until the excess is absorbed.

Relevant Date: Finance Act 2019