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View the related Tax Guidance about Withholding Tax (WHT)

Withholding tax

Withholding taxWhat is withholding tax?Withholding tax is not a type of tax, it a mechanism by which tax authorities collect tax. The purpose of having a withholding tax is that the tax authorities can pass on the administrative burden of tax collection to the taxpayer. Where there is a cross-border payment, it gives the tax authorities a way to tax a non-resident who is outside of their jurisdiction, through effectively using a resident as an agent. It should be noted that withholding tax can apply to transactions in a wholly domestic context and not just to cross-border transactions. For example, a UK resident company must withhold income tax on payments of interest made to a UK resident individual shareholder. When discussing withholding tax it is helpful to have a clear understanding of the terms 'source' and 'resident'.A company is typically only tax resident in one jurisdiction, but it can receive income from sources in many jurisdictions. Withholding tax applies at source, and the rules of the source country should be the starting point of any analysis as to the rate of tax or administrative requirements. In many cases, the countries involved (ie the jurisdiction of residence and jurisdiction of source) will have a bilateral double taxation treaty (DTT), which can provide additional rules regarding withholding tax liability and rates for transactions involving those two countries. For more on the UK meaning of residence, see the Residence of companies guidance note. The obligation to withhold UK tax may be reduced

Double taxation treaty passport scheme

Double taxation treaty passport schemeIntroductionWhere a corporate borrower other than a financial institution pays interest with a UK source to an overseas lender, then the general rule is that income tax must be withheld at 20%. This is subject to a significant number of exceptions such as the one related to interest on quoted Eurobonds in ITA 2007, s 882. Where a double taxation treaty exists between the jurisdictions of the borrower and the lender then WHT may be reduced partially or wholly on the making of a formal claim. For payments made before 1 June 2021, UK withholding tax on interest may also have been eliminated under the UK legislation which gave effect to the EU Interest and Royalties directive on a loan where an EEA company beneficially owns at least 25% of a UK company, or vice versa. Relief was not automatic and an application to HMRC by the overseas recipient was required in order to receive gross interest from a UK company. The UK legislation enacting the provisions of the Directive is repealed for payments made on or after 1 June 2021, by FA 2021, s 34. For additional information, see the Withholding tax on payments of interest guidance note. For general details on withholding tax (WHT) on interest, royalties and rental income, see the Withholding tax guidance note. Prior to the introduction of the double taxation treaty passport (DTTP) scheme, a time-consuming and onerous process was required for each and every loan issued. The overseas

Corporation tax return ― compliance toolkit

Corporation tax return ― compliance toolkitApproach when preparing a corporation tax returnTax law has become increasingly complex in recent years and there is often a myriad of issues to keep in mind when preparing the corporation tax return. Coupled with this, the tax compliance process is typically highly pressured because of the somewhat competing priorities of having to finalise the tax return quickly but at the same time accurately and to a high standard. This toolkit is aimed at supporting tax advisers that prepare or review corporation tax returns in delivering high-quality and accurate returns by providing guidance on the most common areas in a set of financial statements that give rise to tax adjustments. The toolkit focuses on the issues typically encountered by a UK trading company, but many of the issues will also be relevant to non-trading companies such as property investment companies or holding companies. The accounting areas discussed below follow the typical order of a standard set of financial statements. The list is not exhaustive, but covers the more frequently encountered tax issues in reviewing a set of financial statements and preparing the tax return. An explanation of the relevant issue for each area is provided, together with practical points to be aware of and links to additional information so that more detailed research can be carried out. Initial considerations when starting the corporation tax compliance reviewThere are several sources of information which can prove extremely useful when starting the compliance review process. These can

Non-trading deficits on loan relationships

Non-trading deficits on loan relationshipsOverview of non-trading deficits (NTDs)When a company’s debits on its non-trading loan relationships and derivative contracts in an accounting period exceed the credits on its non-trading loan relationships and derivative contracts in the same period (the deficit period), the surplus is a special category of loss which is known as an NTD.This guidance note considers how companies can utilise their NTDs. For guidance on determining a company’s debits and credits from loan relationships and whether these are trading or non-trading, see the Taxation of loan relationships guidance note.Relief for NTDs against current year profitsCompanies can claim for NTDs to be offset against other profits of the same period. Relief is given after the automatic set off of any trading losses brought forward but only where those trading losses arose prior to 1 April 2017. Trading losses brought forward that arose on or after 1 April 2017 do not have to be automatically offset against future trading profits (see the Trading losses carried forward guidance note). Relief for the NTD is given in priority to current year trading losses, property losses, trading losses carried back from a later period and loan relationship deficits carried back from a later period. The claim can specify all or part of the NTD to be offset.See Example 1, which is taken from CFM32060.NTDs of the current period can be offset against profits of any description (except ring fence profits) but the claim must identify which profits are being offset. Usually