Dual National US UK: CT61 Tax on Interest From Your Company

When a UK company pays interest on a loan from its own shareholder, and the loan is meant to last a year or more, the company must usually deduct basic rate income tax, report it quarterly on form CT61 and pay it to HMRC. The lender declares the gross interest in the UK and the US, and claims credit for the tax deducted.

That is the short answer. The longer answer matters because the lender here is usually a Dual national US UK founder, or a US citizen investor, who has put serious capital into a UK trading company as a loan rather than as share capital. The UK withholding rules, the treaty and the US foreign tax credit rules all apply to the same interest payment, and each one works differently. At Jungle Tax we see the same pattern again and again. The company has paid the interest gross for years, no CT61 has ever been filed, the lender has declared the interest in one country but not the other, and nobody has thought about the currency gain waiting on the loan principal. This guide covers the whole picture: the UK duty to deduct, the treaty position for a lender living outside the UK, the US treatment down to the foreign tax credit basket, and how to put several years right on both sides at once.

This guide deals with interest on a performing loan, meaning a loan that is paying interest and is expected to be repaid. If the loan has gone bad and you are looking at writing it off, see our separate guide on a US lender's loan to a UK trading company and the bad debt rules.

When does a UK company have to deduct tax from interest it pays its owner?

The rule is in Part 15 of the Income Tax Act 2007. Under section 874 ITA 2007, a company that pays yearly interest arising in the United Kingdom must deduct a sum for income tax at the savings basic rate in force for the tax year of payment. For 2026/27 that rate is 20%. The duty falls on the paying company, not the lender. It applies whoever the lender is: a director, a shareholder, a family member or an unconnected private investor. It applies whether or not the lender lives in the UK.

Three conditions have to be met, and each is worth testing properly before assuming a CT61 obligation (or assuming there isn't one).

1. Is it "yearly" interest or "short" interest?

The duty applies only to yearly interest. Short interest, on a loan that is not intended to last a year or more, falls outside it. HMRC's guidance at SAIM9070 and the pages that follow it sets out the case law. The deciding factor is what the parties intended when the loan was made. A loan intended to be outstanding for a year or more, or with no fixed repayment date, produces yearly interest. Quoting an annual percentage rate does not by itself make interest yearly. Founder loans are almost always long-term or open-ended, so the interest on them is almost always yearly. If you want to argue that interest is short, you need documents written at the time showing that the loan was meant to be repaid within a year.

2. Does the interest "arise in the UK"?

Interest paid by a UK-resident company on a debt it owes, out of UK funds, secured on UK assets or enforceable in the UK, will almost always arise in the UK. The factors come from case law and include the debtor's residence, where the interest is paid from, the governing law and where the debt can be enforced. Changing the governing law or paying from an offshore account rarely moves the source when the debtor is a UK trading company, and it can create more problems than it solves.

3. Does an exemption switch the duty off?

Sections 875 to 888E disapply the duty in specific cases. Examples include interest paid by banks in the ordinary course of business, quoted Eurobonds, and payments to UK companies within the charge to corporation tax. None of these normally helps an individual lending to their own private company. The route that does help, for a lender living outside the UK, is a direction from HMRC under the double taxation treaty. We cover it below.

How the CT61 return and payment work

A company that deducts tax reports and pays it through the quarterly CT61 return. HMRC publishes the form and notes on its CT61 publication page. The key points:

• Return periods end on the standard quarter days (31 March, 30 June, 30 September and 31 December), plus an extra period ending on the company's accounting reference date if that falls in the middle of a quarter.
• A return is needed only for a period in which a relevant payment was made. A company paying interest once a year files one return, covering the quarter it paid in.
• The return and the tax are due 14 days after the end of the return period. For interest paid on 15 March, the CT61 and payment are due by 14 April.
• The trigger is payment, not accrual. Interest accrued in the accounts but not paid does not create a CT61 liability until it is paid. HMRC generally treats interest credited to an account the lender can freely draw on, such as a director's loan account, as paid at that point.
• A company that has never filed a CT61 usually has to ask HMRC to set it up first. Build that into the timetable for any catch-up.

The company deducts the full gross interest as a finance cost under the loan relationship rules, not the net amount. Two corporate points are often missed. First, interest at more than a reasonable commercial rate paid to a shareholder in a close company can be recharacterised as a distribution to the extent of the excess, which changes its treatment for the company and the lender. Second, special late-paid interest rules can hold back the company's deduction for interest owed to connected parties until the interest is actually paid. Neither point changes the CT61 mechanics for interest that is paid, but both belong in the review.

The certificate of deduction the lender should receive

Under section 975 ITA 2007, if the lender asks in writing, the company must give a written statement showing the gross interest, the tax deducted and the net amount actually paid. There is no mandatory HMRC template. A short letter or schedule on company letterhead, one per payment or one per tax year, is enough. For a cross-border lender this document does a lot of work. It supports the tax credit on the UK Self Assessment return, the foreign tax credit on the US return, and any treaty repayment claim. Ask for it every year, even when you are both the director signing it and the lender receiving it.

A worked example: the founder's loan

A US citizen founder living in London has lent her UK trading company £500,000 on an open-ended loan at 7%, with interest paid quarterly. Annual interest is £35,000, or £8,750 each quarter.

• Each quarter the company deducts £1,750 (20%), pays her £7,000 net, and files a CT61 showing £8,750 gross and £1,750 tax, paying the £1,750 within 14 days of the quarter end.
• On her UK Self Assessment return she declares £35,000 of gross interest with £7,000 of tax already deducted. Her salary and dividends put her in the additional rate band, so her personal savings allowance is nil and the interest is taxed at 45%, a liability of £15,750. After the £7,000 credit she pays a further £8,750 through Self Assessment.
• On her US return she reports the dollar equivalent of the £35,000 as ordinary interest income. The full UK income tax on that interest, £15,750 and not just the £7,000 withheld, is a potentially creditable foreign tax, subject to the limitation and basket rules below.

If the company had never deducted, the UK outcome for her is almost the same: she still owes £15,750, all through Self Assessment. The difference is that the company is separately exposed for £7,000 a year that it should have deducted. How that is unwound is the subject of the catch-up section.

How does the UK lender report the interest and the tax credit?

A UK-resident lender reports the gross interest, meaning the amount before deduction, in the UK interest section of the Self Assessment return, and enters the tax deducted separately. Interest is savings income, taxed in the tax year it is paid, at the savings rates that apply on top of the lender's other income. The allowances available against it depend heavily on total income:

• Personal savings allowance: £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and nil for additional rate taxpayers. Many founders and executives lending to their own company are additional rate taxpayers, so in practice there is no allowance.
• Starting rate for savings: up to £5,000 at 0%, but it shrinks pound for pound as non-savings income rises above the personal allowance. For a high earner it is gone.
• Dividend allowance: £500. It is a separate allowance and does not shelter interest. It matters here only because interest and dividends are the two main ways of taking money out of a company in which you are both lender and shareholder.

Two forward-looking points. The dividend ordinary and upper rates rose by two percentage points from April 2026. The November 2025 Budget also announced a two-point rise in the savings rates from April 2027, to 22%, 42% and 47%. Because section 874 ties the deduction to the savings basic rate, the CT61 deduction rate is expected to follow and rise to 22% for payments from 6 April 2027. Confirm the enacted rate before the first payment after that date, and update payroll-style templates that hard-code 20%.

What if the lender does not live in the UK?

Many dual nationals lend to a UK company from the US, often after moving back. The UK duty to deduct still applies: section 874 expressly covers payments to people who are not UK resident. Without treaty relief, the 20% deducted is usually the lender's final UK tax on that interest. UK rules limit a non-resident individual's liability on this kind of UK savings income to the tax deducted at source, so there is normally no UK return to file just for the interest.

Article 11 of the US-UK treaty

Under the interest article of the US-UK double taxation convention, interest arising in the UK and beneficially owned by a resident of the US is generally taxable only in the US. For a lender who is resident in the US for treaty purposes, UK tax on the interest can be reduced to nil. There are limits. Where a special relationship between the parties pushes the interest above what unrelated parties would agree, the relief applies only to the arm's length amount. Certain contingent interest is also excluded. A founder setting the rate on a loan to her own company should be able to justify that rate as commercial.

For a dual national, the question is where they are resident under the treaty, not which passport they hold. A dual national living in London is UK resident. Article 11 gives no UK relief, and the company must deduct as normal. A dual national living in New York who is not UK resident in that year is the person the article is designed for.

Getting HMRC's authority to pay gross: form US-Individual 2002

Treaty relief is not automatic. The company must keep deducting until HMRC tells it otherwise. An individual resident in the US applies on form US-Individual 2002, which is published on gov.uk. The same form can ask for relief at source on future payments and a repayment of tax already deducted. The IRS must certify the lender's US residence on the form before it goes to HMRC. If HMRC accepts the claim, it issues a notice directing the company to pay the interest gross. Until the company receives that direction, it must keep deducting and filing CT61s. Lenders resident in other treaty countries use the general DT-Individual form instead. HMRC updates these forms from time to time, so check the current version on gov.uk before filing. The Double Taxation Treaty Passport scheme, which is sometimes suggested, is for corporate lenders and does not help an individual.

There is an important US consequence. If the treaty would have removed the UK tax and you do not claim it, the UK tax withheld is generally not a creditable foreign tax for US purposes. The US foreign tax credit rules only allow credit for tax you were actually required to pay, and they expect you to use reasonable remedies, including treaty claims, to reduce it. A US-resident lender who leaves the 20% with HMRC can end up taxed twice: once in the UK, and again in full in the US with no credit. Filing the repayment claim is part of preparing the return properly, not an optional extra.

The US side: how the IRS taxes interest from your own UK company

A US citizen or green card holder is taxed on worldwide income wherever they live. Interest from a UK company is foreign-source ordinary income, taxed at ordinary rates of up to 37%. It is reported on Schedule B, and Part III of Schedule B also asks about foreign accounts. Five further issues decide whether the US return is right.

1. The foreign tax credit and which basket the interest falls into

UK income tax on the interest is claimed as a foreign tax credit on Form 1116. For a UK-resident lender that means the full UK tax on the interest, including the Self Assessment balance. For a US-resident lender who claimed treaty relief there may be no UK tax to credit at all. The credit is limited basket by basket, which is where interest from your own company becomes technical.

Interest from a portfolio investment normally falls into the passive category. But if the UK company is a controlled foreign corporation (CFC), meaning US shareholders owning 10% or more each together own more than 50% by vote or value, and the lender is one of those US shareholders, a look-through rule applies. Interest the CFC pays to a related US shareholder is matched first against the CFC's own passive income and reduces it (but not below zero). Only the part of the interest above that amount is spread across the CFC's other income categories, using the CFC's apportionment method. For a genuine trading company with little passive income, much or all of the interest may therefore be general category income. For a company holding substantial cash or investments, the passive share is larger. The basket split matters because UK tax at 40% or 45% on interest can soak up surplus credit capacity in one basket while leaving another unused. The exact split depends on the CFC's income profile each year, so treat it as a calculation to do, not a default to assume. If the company is not a CFC, the interest is generally passive, subject to the high-taxed income rules.

2. The 3.8% net investment income tax

Interest is net investment income. The IRS position is that foreign tax credits cannot reduce the 3.8% net investment income tax, and recent court decisions have supported it under other treaties. A UK-resident founder whose UK tax on the interest fully covers the US regular tax may still owe NIIT on it. The self-charged interest rules that can exclude interest from a pass-through entity do not apply to interest from a foreign corporation.

3. Timing: when interest accrues but is paid later

The UK taxes interest when it is paid, and the CT61 duty arises on payment. A cash-basis US individual normally reports interest when it is received or constructively received. For a controlling shareholder, interest credited to an account they can draw on may be constructively received even if it is left in the company. There is a bigger mismatch when interest is allowed to roll up. If the loan terms do not require interest to be paid unconditionally at least once a year, the US original issue discount rules can require the interest to be included as it accrues, whatever your method, while the UK waits until payment. The result is US income years before the UK tax that would be credited against it. The US foreign tax credit timing rules, which differ for cash and accrual claimants, then decide which year the UK tax is credited in. Where interest is deferred, the loan terms should be read with both regimes in mind.

4. Section 988 currency gain or loss on the sterling principal

A loan made in pounds by a US-dollar taxpayer is a foreign currency debt instrument under section 988. When the principal is repaid, you calculate a currency gain or loss by comparing the dollar value of the sterling at repayment with its dollar value when you made the loan. Suppose the founder lent £500,000 when £1 bought $1.25 (a $625,000 basis) and is repaid when it buys $1.35 ($675,000). She has a $50,000 section 988 gain, taxed as ordinary income, even though she got back exactly the pounds she lent. Each interest payment is translated at the exchange rate when it is received. The UK generally does not tax a gain on the original creditor's disposal of a simple debt, so there is no UK tax to credit against this US-only income. A fall in sterling produces an ordinary loss instead. The pounds then sitting in your UK account have their own currency exposure, which we cover in our guide to section 988 gains on GBP cash.

5. Form 5471 Schedule M and Form 8938

A US person who controls the UK company, or owns 10% or more of a CFC, will generally file Form 5471. Schedule M reports transactions between the CFC and its US shareholders and related persons. This includes the interest the company paid and the loan balance, reported as the maximum amount outstanding during the year. Category 4 and Category 5 filers are generally the ones who complete Schedule M. The figures should agree with the company's accounts, the CT61s and the interest on your own return, because an examiner will compare them. The penalty for failing to file Form 5471 starts at $10,000 per form per year, and the assessment period for the whole return can stay open until the form is filed.

The loan receivable itself is a financial instrument issued by a non-US person, so it is generally a specified foreign financial asset for Form 8938. It counts towards the reporting thresholds. For a single filer living abroad those are $200,000 at year end or $300,000 at any time in the year, rising to $400,000 and $600,000 for joint filers. For US residents they are $50,000 and $75,000 (single) or $100,000 and $150,000 (joint). A loan to your own company is not a financial account, so it is not reported on the FBAR, although the UK bank accounts the interest is paid into will be. If you are unsure how exposed a history of unreported accounts is, our FBAR penalty calculator gives a first view.

US and UK treatment side by side

Issue	UK (HMRC)	US (IRS)
Character of the interest	Savings income, taxed at 20%/40%/45% (22%/42%/47% announced from April 2027)	Ordinary income up to 37%, plus 3.8% NIIT where it applies
Withholding	Company deducts savings basic rate at source on yearly interest (s874 ITA 2007)	No US withholding on interest from a foreign company
Reporting by the payer	Quarterly CT61; statement to lender on request (s975)	Form 5471 Schedule M by the US shareholder
When taxed	When paid	When received or constructively received; as it accrues if OID rules apply
Relief for the other country's tax	UK resident: treaty and credit rules leave the UK with primary taxing rights over UK-source interest	Foreign tax credit on Form 1116, split by passive or general basket (look-through for a CFC)
Non-resident lender	Article 11 relief via form US-Individual 2002 and HMRC direction to pay gross	UK tax a treaty would have removed is generally not creditable
Currency movement on principal	Generally no chargeable gain on a simple debt	Section 988 ordinary gain or loss on repayment
Asset reporting	None for the loan itself	Form 8938 (loan receivable); FBAR for the bank accounts, not the loan

What happens if the company never deducted tax or filed CT61s?

This is the most common situation we see, and it can be fixed. The consequences fall differently on the company and on the lender.

The company's exposure

The company is primarily liable for tax it should have deducted, whether or not it actually deducted it. HMRC can raise an assessment for the tax due on the CT61 returns that were never made. Late payment interest runs from the date each quarter's tax should have been paid, and penalties can apply for failing to file and for inaccuracy. As with most HMRC penalties, the amount depends heavily on whether the failure was careless or deliberate, and on whether the company tells HMRC before HMRC contacts it (an unprompted disclosure) or only after. An unprompted disclosure with full quantification is by far the best position.

How HMRC treats the lender

If nothing was deducted, a UK-resident lender is taxed on the full interest through Self Assessment with no credit. If they declared it gross and paid the full tax at their marginal rate, they have usually paid the right amount overall. The underpayment sits with the company, not with them. Problems arise when the lender left the interest off the return, or declared it but claimed a 20% credit for tax that was never actually deducted or paid. For a non-resident lender with no treaty clearance, the missing 20% was usually their final UK tax, and the company should have collected it.

Commercially, the company that pays the missing tax has overpaid the lender by that amount. It is common to recover the shortfall by debiting the lender's loan account. That also supports the lender's position that tax has been accounted for on their interest. It must be done consistently, documented, and reflected on both sides' returns.

Catching up: putting several years right on both sides together

Mistakes here are rarely confined to one year or one country. A founder who never had CT61 deducted has often also missed the Form 5471, understated the US interest, claimed foreign tax credits in the wrong basket, or never filed US returns at all. Fixing the UK side while leaving the US side unchanged just moves the problem across the Atlantic. The sequence we follow is:

1. Rebuild the loan history. Loan agreements, board minutes, the date and amount of every advance and repayment, every interest payment or credit to the loan account, and the exchange rates on each date. Where interest was accrued but not paid, record both dates.
2. Quantify the CT61 liability quarter by quarter. For each return period in which interest was paid or credited, apply the savings basic rate for that tax year to the gross interest and calculate late payment interest from each due date. For a loan paying £35,000 a year over four years, that is £28,000 of tax across as many as sixteen quarters before interest.
3. Test the exemptions and treaty status year by year. A lender who moved between the UK and the US may have been treaty-eligible in some years and not others. Treaty repayment claims have time limits, so check which years are still in time.
4. Correct the company position. File the late CT61 returns, pay the tax and interest, and make an unprompted disclosure explaining the failure, what caused it and the controls now in place.
5. Correct the lender's UK returns. A Self Assessment return can be amended online within 12 months of the 31 January filing deadline. Earlier years are corrected through HMRC by disclosure. HMRC's normal assessment window is four years, extended to six for carelessness and twenty for deliberate behaviour.
6. Correct the US returns in step. Amend the interest figure, reclassify foreign tax credits between baskets, reflect UK tax in the year the US timing rules allow, report any section 988 gain or loss, and file the missing Forms 5471 and 8938. Claims for refunds arising from foreign tax credits get an extended ten-year window, measured from the due date of the return for the year the foreign tax was paid or accrued. Most other amendments are limited to three years from filing or two years from payment. Where US returns were never filed, or the non-filing was non-wilful, the IRS streamlined filing procedures, including the Streamlined Foreign Offshore Procedures for those living outside the US, are often the cleanest route to bring every year up to date at once.
7. Set up clean compliance for the future. A quarterly CT61 routine, an annual section 975 statement, an HMRC gross payment direction where the treaty applies, and a year-end schedule that feeds the Self Assessment return, Form 1116, Schedule M and Form 8938 from the same numbers.

The underlying point is simple. Every figure should agree across the CT61s, the company accounts, the lender's Self Assessment return and the US return. HMRC and the IRS do not share a single file, but they do exchange information, and a mismatch between returns is exactly what an examiner looks for. Our US-UK tax accountants prepare both sets of returns from one reconciled set of workpapers so they stay consistent.

Why this matters more for high-net-worth founders

The amounts involved are rarely small. Shareholder loans in the hundreds of thousands or millions of pounds are routine for founders who funded a UK company themselves, and our high-net-worth clients are almost always additional rate taxpayers with no allowances left, often also facing NIIT and basket limits in the US. A missing CT61 across several years, on top of a section 988 gain on repayment and a Form 5471 that was never filed, can add up to real money and to returns that stay open for a long time. Dealt with early and on both sides together, it is manageable and usually far less costly than people fear.

If you have lent money to your own UK company and are not sure the interest has been handled correctly in either country, or you are planning a repayment and want to understand the currency effect first, contact our cross-border team for a confidential consultation. We will review the loan, quantify any CT61 and US exposure, and prepare the corrected UK and US returns together, so both countries have the same numbers.