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UK: Revised approach to interest-only assessments on unpaid withholding tax

UK: Revised approach to interest-only assessments

HM Revenue & Customs (HMRC) confirmed that it will no longer seek to raise charges for late-payment interest on unpaid withholding tax on intra-EU transactions.


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Under UK tax law, interest and royalties paid overseas are subject to withholding tax of 20% unless a treaty clearance is in place or, if royalties only, if the payer reasonably believes that the payee is entitled to relief under a treaty. When a clearance is not in place, the payer is required to report and pay the withholding tax quarterly to HMRC by filing a CT61 return.

When interest or royalty payments have been made to an overseas payee before the treaty clearance is obtained and no tax was withheld, HMRC’s long-standing policy has been to charge late-payment interest on the unpaid tax, in addition to the actual tax due. This late-payment interest accrues from the date that the tax was due to be paid to HMRC until the treaty clearance is granted or the time when the tax is settled. This late-payment interest has been imposed by HMRC even in cases when under the treaty, no withholding tax would have been due.

When late-payment interest has already been paid to HMRC for interest or royalties paid to a person taxable in another EU Member State, this is in contravention of EU law. Therefore, it would be possible to make a claim for the interest to be repaid.

For non-EU transactions, there will continue to be no relief or discharge for late-payment interest charges. HMRC did not indicate what would be the effect of Brexit on such late-payment interest with respect to UK-EU transactions after the UK leaves the EU and particularly, after the end of any transition period.

Read a January 2020 report prepared by the KPMG member firm in the UK

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