Readers’ forum: Tax treatment of interest paid to members of the club

We are a private golf club that is limited by guarantee comprising 500+ members (not a community amateur sports club).

From time to time we offer the members the opportunity to subscribe to our loan note scheme. These are detailed loan notes in that they expire on a given date and carry a predetermined interest rate of either 4.75% or against Bank of England rate linked to inflation. The interest payments are sometimes paid in cash or deducted from the members’ annual subscriptions.

Is the interest where it’s paid as a subscriptions reduction deemed to be unearned income for tax purposes and therefore should it be declared (disguised payment) and the interest paid in cash also be declared?

Should the club deduct withholding tax or can it just send a list of payments (amount and to whom) to HMRC?

Query 20 527 – Collins.

HMRC considers reducing...