Withholding tax

Tax collected from the payer

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.

Withholding tax is an effective way for tax authorities, such as HMRC to collect tax. It passes the administrative burden onto the person making the payment (the payer) to:

1. •

   withhold the appropriate amount of income tax from the payment

2. •

   account for such tax to HMRC

3. •

   submit returns to HMRC containing information on the amounts paid and withheld in respect of UK tax, and

4. •

   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.

Many forms of payment are subject to a requirement for the payer to withhold tax, such as employment income (for which, see Practice Note: Scope of the PAYE system), payments of yearly interest (for which, see Practice Note: UK withholding tax on yearly interest) and payments relating to intellectual property