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Withholding tax treatment

Withholding tax in accounts

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I have 2 questions regarding withholding tax.

is irrecoverable withholding tax in the p&l a tax deductible expense or does it have to be added back to profits in the Corp Tax calculation?

2. Recoverable WHT that is used to reduce CT bill as doubly taxation relief - if there is more recoverable WHT than CT payable can the remainder be carried forward as an WHT asset to be used against future corp tax payable?

 

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By Wanderer
12th May 2021 15:57

It depends! Your conclusions seem to be the wrong way around.

For example re question 2 you say it is recoverable. Generally any recoverable overseas tax can't be offset against your tax liabilty.

You need to give a lot more information, country, type of income, description of tax etc.

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By Matrix
12th May 2021 16:20

I assume the recoverable WHT is the tax deducted at the treaty rate and the irrecoverable WHT is the excess of the domestic WHT rate over the treaty rate. The excess should be reclaimable but if you aren’t going down this route then I don’t know if you can claim it as a deduction. You would need to check the law/DTR manual.

Unused tax credits can’t be carried forward so it may be better claiming a deduction for these. There was a similar post fairly recently where the question may have been whether you could split the foreign tax between a credit and a deduction and I think the conclusion was it has to be on a source by source basis.

Found it:
https://www.accountingweb.co.uk/any-answers/claim-foreign-tax-paid-by-uk...

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By michjimblack
12th May 2021 18:30

Thank you you have been very helpful. Basically my client had 30% USA tax deducted from £50000 fee for performing in USA. So 19% can be deducted from corp tax owed and the remaining ‘11 %’ as it were is an‘irrecoverable WHT’ expense in p&l. I wanted to know firstly whether irrecoverable portion is a legitimate expense for corp tax return (ie not added back like depreciation is).
Secondly the 19% proportion that can be offset against cork tax is higher than the corp tax bill so wasn’t sure what to do with the leftover .

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By Matrix
12th May 2021 19:09

11% excess: You will need to check the law/DTR manual whether you have to adjust the tax comp for the excess written off in the P&L.

19% credit: I think you will have to choose whether to credit the foreign tax (and lose any credits in excess of the current year UK tax) or deduct the foreign tax. You can’t credit some and deduct the leftover, read the post I posted.

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By Matrix
12th May 2021 19:59

You should also check whether the tax was deducted from the individual or the company. Companies aren’t performers so I fear there is no tax credit.

Did your client take US tax advice before setting up this structure and accepting the work?

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Replying to Matrix:
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By Wanderer
12th May 2021 20:34

Matrix wrote:

You should also check whether the tax was deducted from the individual or the company. Companies aren’t performers so I fear there is no tax credit.

Doesn't Article 16 para 2 cover when the income relating to the services of a performer is paid to a company?
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Replying to Wanderer:
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By Matrix
12th May 2021 21:33

Maybe you are right and my fears are foundless. I have just come across in the past where an entity is treated differently in the UK and the US.

Even if the tax is creditable, I just wondered whether the performer took advice and why they decided to put this through a company due to the tax leakage.

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By more rain
13th May 2021 10:57

Is £50,000 the gross or net fee?

If WHT has been withheld on the gross would HMRC not expect the taxpayer to minimise the foreign tax withheld at source. i.e file a US tax return.

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