UK withholding tax is a method of collecting tax at source from the person who makes a payment instead of raising an assessment on the recipient. It is is an effective way for tax authorities (HMRC) to collect tax. It passes the administrative burden onto the person making the payment (the payer) to:
- withhold the appropriate amount of income tax from the payment
- account for such tax to HMRC
- submit returns to HMRC containing information on the amounts paid and withheld in respect of UK tax, and
issue tax statements or certificates to the recipient informing them of the amount of the payment and the amount of the tax deducted even though the tax is due in respect of income belonging to the recipient.
As a general rule, UK domestic law requires companies making payments of interest to withhold tax at 20%
Withholding tax is an income tax that often affects companies. It doesn't fit neatly into publications aimed at income tax, where corporation tax practitioners may miss it, or corporation tax, as it is strictly income tax and has relevance for individuals.
Covers the following issues:
- Interest, covering the domestic withholding requirement, then moving on to consider how the recipient may claim a reduction or repayment, considering the role of double taxation treaties and, for now, the EU Interest and Royalties Directive (under UK law, a company may have a duty to withhold tax in relation to the payment of either interest or royalties.
- Royalties; the obligation to withhold , and moving on to consider how the tax to be withheld can be reduced or repaid. The role of double taxation treaties and the EU directive will also be covered here.
- How withholding tax relates to dividends.
- Discussion of the Offshore Receipts in respect of Intangible Property regime. This is not strictly a withholding tax, but the regime has its roots in the royalties withholding tax rules.
- The possible impact of Brexit will be covered where relevant.
The guidance is illustrated by the use of diagrams and flow charts and case studies. Relevant case summaries are referenced throughout.