My client undertook employment in Holland and tax was deducted by his employer. This was reported on his UK tax return showing his gross income and claiming credit for the tax that he had suffered.
The Tax Inspector has said that he can only claim a credit to the extent of the actual tax due to the overseas authority, after the application of any allowances or reliefs and the full rate bands for the year. He has calculated that the amount of credit that my client can claim is £1,172 where he was actually deducted £12,801 on gross income of £48,827.
He then goes on to suggest that my client should apply to the Dutch authorities for refunds, which he understands is a relatively straight forward process.
Is this correct procedure? I have not come up against this before.
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Yes - that's right. The UK authorities are only obliged to give a credit for the liability which had to be paid under the terms of the relevant DTA. If your client can claim some tax back from the Dutch authorities, he should do so. Personally I think that's a good idea as, essentially, any foreign tax relief given against UK tax comes out of UK taxpayers' pockets so it seems reasonable to me that it should be restricted to the amount needed to be paid.
The Dutch are generally very organised, I believe, so hopefully it will be fairly straightforward. Your client will need to send a letter to the Dutch authorities with a certificate of UK residence which can be obtained from HMRC to prove he is entitled to relief under the DTA. See here:
https://online.hmrc.gov.uk/shortforms/form/PT_CertOfRes
And here:
http://www.hmrc.gov.uk/manuals/dtmanual/DT14012.htm
Just be glad it's the Netherlands and not Greece!
Cathy