Withholding Tax Services in the United Kingdom

3E Accounting offers top-notch withholding tax services in the UK so you can confidently handle all your taxation issues.

Withholding tax occurs with respect to the deduction of tax on recurring payments. In such instances, the income tax is collected at the source of the recurring payments. The paying company withholds a specific amount of the tax while paying the net. The Pay As You Earn or PAYE system is seen as a form of withholding tax as wages are net of tax. The paying company will withhold part of an employee’s salary and pay it to the government as tax. Withholding tax services in the UK ensures that companies meet their statutory compliance.

Some countries also charge withholding tax on companies in one place paying interests, etc. to companies in another place. Usually, double taxation treaties (DTT) will be agreed upon, or European directives will apply. Rates of withholding tax are provided for in the treaty provision and are usually subject to formal claims. However, European directives will be affected post-Brexit, and it will be prudent for companies to make contingency plans.

 

The Operation of Withholding Tax

HMRC is the primary tax authority for UK taxes. Scotland and Wales have their own authorities, i.e., Revenue Scotland and the Welsh Revenue Authority. United Kingdom domestic law may require companies to withhold tax on the payment of interest, rental income, and royalties. All tax that is withheld is paid to the tax authorities of the company withholding the tax.

Dividends, however, generally do not fall under this category and are always paid gross. Exceptions arise in particular circumstance such as in property income distributions. Usually given by REITs (Real Estate Investment Trusts), these have a cap of 20% withholding tax rate. Certain construction activities may also be subject to withholding tax rate of 20% or 30%.

With regards to withholding tax on interest payment, the general rule is to withhold tax at 20%. The source must be within the UK, and it must be a recurring annual interest that is actually paid. Exceptions to the general rule arise in certain instances such as where interest payments are paid to or by a UK bank. The interest must be an annual one, and short-term loan interests do not apply. The source must also be a UK-source, and it is best to consult with specialist companies such as 3E Accounting to ascertain this.

Withholding tax on royalties is at 20% and cover instances where payments are made for:

• Copyright
• Design and model
• Secret formulas and patent
• Trademarks and brand names
• Plans

However, this is not a definitive list and withholding tax is excluded explicitly for royalties from film, etc. Some forms of royalty payment may also be paid gross, for instance, where a DTT exists. Hence, specialist advice is needed as royalties are broadly categorised as ‘qualifying annual payments.’

3E Accounting offers professional withholding tax services in the UK along with other customisable business solutions. Tax filings are complicated and unavoidable, and our team of experts are trained to ensure proper compliance at every juncture. Contact 3E Accounting today to ensure that you thoroughly understand all matters relating to taxation and never miss a deadline again.