Why is my company taxed on interest it did not work for?
Corporation Tax takes a share of what your company made over the year, and money it earns by holding cash counts. Your bank pays you for leaving a balance sitting there, so the company has earned something.
If £8,000 sat in the business savings account all year and brought in £320, that £320 is part of what your company made. It goes in the same pot as the profit from your work and is taxed once, at your company's rate.
Has the bank already taken tax off it?
No, not on a UK account. Your company gets the full amount, and no tax has been paid for you.
Plenty of directors expect a tax credit here, and that expectation comes from personal savings accounts. Years ago a UK bank took 20% off the interest on a personal account before you saw it, so some of the tax was already handled. That stopped in April 2016, and it never applied to company accounts at all. Whatever number your UK bank shows for the year is the number your company is taxed on, and there is no credit sitting anywhere for you to go and find.
There is one exception, and it only bites if the money is abroad. An account outside the UK can have foreign tax taken off the interest before it reaches you. That amount is not lost, there are rules for setting it against your UK bill, but it is fiddly and worth getting help with. A normal UK business or savings account has none of this.
Where does it go on the return?
On its own line further down the return, and from there it flows into the profit figure your tax is worked out on. It keeps away from your turnover box. Turnover means the sales from the work your company does, and interest is not a sale, so dropping it in there overstates your trading and leaves a figure HMRC can query. Our guide on what belongs in box 145 covers that box.
You never have to hunt for the interest line yourself. We put the figure where it belongs and show you where it landed.
What if my company is dormant?
A quiet company can lose its dormant status without you doing a thing, and that one costs money.
A company counts as dormant for tax when it has stopped trading and has no other income coming in. HMRC treats getting interest as income, so a company that trades nothing, employs nobody and does nothing at all can stop being dormant because its old bank account paid it £11.
Once a company is no longer dormant, what it has to send changes, and a missed return brings a penalty even when the tax owed is pennies. If that is your situation, start with what a dormant company files, and if HMRC has already written to you about a company that never traded, read the notice guide next.
Two practical moves for a company you want to keep parked: switch the account to one that pays no interest, or empty it. Companies House runs its own separate dormancy test, and it ignores only a very short list of things: its own filing fees, a late filing penalty, and the money paid for shares when the company was set up. Interest is not on that list, so a company you want left alone is a company with a quiet bank account. If you are still weighing up whether to keep the company at all, strike off or stay dormant lays out both routes.
What it looks like in real money
Your company made £40,000 profit from its work. It also earned £320 of interest on the business savings account.
| Profit from the work | £40,000 |
| Interest earned | £320 |
| Total profit taxed | £40,320 |
| Corporation Tax at 19% | £7,660.80 |
The interest added £60.80 to the bill. That is all it does: it joins the pile and gets taxed at your normal rate. Companies with profits over £50,000 pay a higher rate on the way up, and that £50,000 line gets shared out if you control more than one company.
One case is different, and it matters most to the quiet companies above. The 19% rate is for companies that are really running a business. A company that does nothing but hold cash, so interest is the only thing it earns, does not get the 19% rate at all: it pays the main 25% rate on that interest, however small the amount. On £320 of interest that is £80 rather than £60.80.
Do I need to keep anything?
Keep the yearly interest figure your bank gives you, or the statements it comes from. Companies keep their records for six years from the end of the accounting period they fall in.
How SimpleReturns handles it
Connect your bank or upload a statement, and we spot the interest, keep it out of your turnover, put it on the right line, and show you the total before anything goes anywhere. If the interest is the only thing your company earned all year, we will tell you what that means for what you file.