Corporation Tax DTR

Corporation Tax DTR

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Is there any reason why a corporate body in the UK would not be able to reclaim withholding tax?  I'm really only familiar with this in the personal tax sphere, but where a company doing work in Kenya has had Withholding Tax deducted according to local regulation, should there be any problem in their reclaiming the tax against their CT bill (apart from the obvious of not having a CT bill)?

The corporate body has said that, with a £1,000 fee (a bit more than that!) having had £150 deducted, they will need to invoice for the £150 which of course would in turn need to have withholding tax taken etc.  Am I missing something through lack of knowledge of CT issues, or isn't it just a case of 'suck it up guys'?

Replies (9)

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By Exector
05th Feb 2015 12:52

No should be no issues in getting UK credit for the WHT - the UK - Kenya DTA provides for it- and it would just be incorporated in the relevant pages of the CT600 return, tho subject to a maximum UK relief of the UK CT payable on the doubly taxed income.

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Portia profile image
By Portia Nina Levin
02nd May 2015 11:26

(No subject)

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By Exector
05th Feb 2015 14:19

Accept those provisos

Well I did say "should", but no argument about Portia's qualifications (probably in both senses)

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By nogammonsinanundoubledgame
05th Feb 2015 15:48

I vaguely remember in the dim recesses of my mind ...

... that there is some further limitation that if the tax can be reclaimed form the foreign state then you cannot voluntarily choose to recover it in the UK instead.

Or is that baloney?

With kind regards

Clint Westwood

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By User deleted
05th Feb 2015 15:52

@Clint

I believe that you are thinking of unilateral relief in cases where treaty relief is unavailable. In such cases relief will be restricted or denied if the taxpayer has not done everything in their power to minimise the foreign tax. Eg if they could have signed a document exempting them from tax in the overseas country, but didn't, relief may be denied.

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By MarionMorrison
05th Feb 2015 19:27

Thanks

With due deference to Portia, none of the above apply and if the overseas rate exceeds the British tax then it isn't denied but restricted to the tax that would have been payable if the earnings were taxed at UK rates.  So if the foreign country takes 25% on a basic rate taxpayer then you are restricted to getting 20% (well those are IT rules).  In IT in fact it's more complicated than that - you have to work out the amount of the profit of the business that derives from that chunk of overseas earnings.  So if the turnover is 10% of your turnover then you work out 10% of the profit and see what the British tax would be on that and restrict to that figure accordingly.  Kenyan WHT is only 15% by the way.

But although those are the IT rules, what I know about CT could be written on the back of a postage stamp.

I assume that you can also treat the withholding tax as a deductible instead in the same way as you could for IT.

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By James26
09th Feb 2015 12:06

Re: WHT

WHT gets deducted from invoices all the time they would only usually pay you more if you have written a gross up clause into their contract with the party in Kenya.  Otherwise you can issue extra fees but they will tell you to whistle for it.  So gross up clause if you invoice 1,000 the Kenyan part (if the WHT rate is 15%) would have to treat this as if they'd received an invoice for 1,176 and account for 176 to their local tax authorities and 1000 to you.  The law the contract is written under is relevant as some territories declare gross up clauses illegal or deny treaty relief etc.  Lots of things to consider, for example, did the activity of the UK company constitute a PE in Kenya and if so is there any local Kenya filing obligation, if so the WHT is likely creditable against Kenyan tax, then the UK status depends on lots of things branch election or not etc.  Assuming no PE in Kenya then normally you need to work out the costs associated with providing whatever was invoiced for then the profit of this multiplied by UK tax rate applicable is the limit of the amount you can take a credit for... as you've alluded to there are other options to explore and c/f / tracing can get complicated to track etc.

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By Alexdon
09th Feb 2015 13:04

Seperate CT Comp

The withholding tax allowance is governed by a separate CT computation for the work undertaken as James26 says.

I have a few clients who operate in Botswana in addition to the UK so we have set their accounting records up accordingly. If your client is to continue suffering WHT you may wish to consider this.

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By trekker
03rd Mar 2015 08:51

separate CT computation?

Hi Alexdon, could you please explain this further? How can this be done while filling the on-line tax return?

Many thanks.

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