Withholding tax

Tax collected from the payer

Certain UK source payments normally require the payer to deduct (and account to HMRC for) an amount in respect of UK income tax (and, in the case of employment income, employee National Insurance contributions as well as income tax) unless a relief or an exemption applies.

This Overview refers to the obligation to deduct (and account to HMRC for) an amount in respect of UK income tax from such payments as a withholding tax even though it is actually 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