Withholding tax meaning

Checklist This Checklist sets out the principal direct and indirect tax considerations that a corporate borrower within the scope of UK corporation tax (a UK corporate borrower) ought to assess both prior to entering into a loan and over the life of that loan... It is designed to be used as a Checklist by the tax adviser to a UK corporate borrower, offering a concise outline of the relevant tax matters and providing space for the adviser to record notes... This Checklist proceeds on the basis that: the borrower is a company within the charge to UK corporation tax in relation to the loan, that is, either a UK tax resident company or a non‑UK tax resident company for which the loan is attributable to its UK permanent establishment (a UK PE), or attributable to the non‑UK resident company’s trade of dealing in or developing UK land; and the borrower and the lender are unconnected parties dealing at arm’s length ...

This checklist highlights the principal tax considerations when handling distressed corporate debt, addressing in turn: acquisitions of non-performing loans debt restructurings (ie waivers, debt/equity swaps and renegotiations) enforcement of debts For fuller analysis of the points signposted here, see Practice Notes: Tax and distressed debt—acquisitions of non-performing loans Tax and distressed debt—debt restructurings Tax and distressed debt—enforcement actions available to creditors Acquisitions of non-performing loans This part summarises the tax considerations when a buyer takes on existing UK debt at a discount to face value: Where should the purchaser be located? will interest paid by the borrower to the purchaser be subject to withholding tax? if the purchaser is non-UK resident, can relief be obtained under a double tax treaty? to what extent will amounts received from borrowers be chargeable on the purchaser? How will the debt...

Withholding tax is a key concern relating to loans. The objective is to ensure no withholding tax arises on interest, thereby avoiding the administrative burden and cost linked to withholding tax. For further detail in this area, see Practice Note: Tax considerations on a loan agreement—the tax gross up clause—a borrower problem. Loan documentation is typically prepared on terms favourable to lenders. That tendency is especially marked for syndicated loan facilities. Such contracts are generally structured for straightforward transfer between lenders and commonly follow, or are derived from, one of the model loan facility agreements of the Loan Market Association (LMA). For an explanation of the rationale for gross-up clauses in loan agreements, see Practice Note: Tax considerations on a loan agreement—the tax gross up clause—Why have a tax gross-up?...

This flowchart mirrors HMRC's diagram in paragraph 5.24 of the Guidance Note on residence, domicile and the remittance basis (RDR1), and continues from Flowchart 1. It is intended for use where the taxpayer's father was not born in the UK and the taxpayer lacks definite intentions, or has only brief plans, to stay in the UK...

Except where an exemption or relief is available, payments of yearly interest that have a UK source (including amounts that tax legislation treats as payments of yearly interest) must be made under deduction, with the payer required to account to HMRC for an amount in respect of UK income tax at the basic rate (20%) or, from 6 April 2027, at the savings basic rate (22%). Although often called a withholding tax, it is in fact simply a means, in practice, of collecting UK income tax. While the tax is imposed on the interest received by the non-UK beneficial owner, it is recovered from the UK-based payer of the interest. For further detail, see Practice Notes: UK withholding tax on yearly interest and Exemptions and reliefs from UK withholding tax on yearly interest. This Flowchart assists in determining whether the quoted eurobond exemption applies to a payment of interest, so that the payer need not withhold UK income tax from that payment in question. For more information on the quoted...

Christopher Purkiss (as liquidator of Ethos Solutions Limited) v Tim Kennedy and others [2025] EWCA Civ 268 Ethos Solutions Limited (the Company) ran a disguised remuneration arrangement under which sums were channelled to an employee benefit trust (EBT) without withholding income tax or NICs. The EBT’s trustee allocated funds into sub-trusts for the respondents and, when asked, advanced the amounts to them as discretionary loans. On 4 December 2012, HMRC issued determinations, holding the Company liable for income tax and NICs of c.£2m arising from payments made to the EBT in the 2008‑09 and 2009‑10 tax years. On 18 December 2012, the Company entered creditors’ voluntary liquidation, making no remittances to HMRC and taking no steps to appeal. On 9 January 2013, HMRC lodged a proof of debt totalling c.£2m with respect to those same EBT payments, as claimed therein...

HMRC v Burlington Loan Management DAC [2024] UKUT 152 (TCC) Background of the dispute After LBIE’s collapse, trading in its debt claims sprang up on a secondary market. The administrators ultimately realised enough assets to discharge all liabilities in full, creating a surplus from which statutory interest on those debts was paid. The Supreme Court determined that the statutory interest arising in the LBIE administration constituted yearly interest and was therefore subject to UK income tax withholding unless an exemption or relief applied (see News Analysis: Administration—Supreme Court confirms statutory interest can be yearly interest (HMRC v Joint administrators of LBIE)). In the circumstances here, a claim against LBIE was transferred by SICL—then in liquidation—to Burlington, via an interim assignment to a broker engaged by SICL’s liquidators to sell the claim. As LBIE’s liquidators had already returned the £142m principal to SICL, the right assigned related solely to unpaid statutory interest of £90.7m. UK income tax of £18.15m was deducted from the interest paid to Burlington. The question...

All seven judges of the High Court of Australia broadly concurred on the construction of an agreement under which PepsiCo would transfer beverage concentrate, trade marks and other intellectual property to Schweppes Australia Pty Ltd for domestic production and distribution. Although, by a margin of 4–3, the court held that Schweppes’ payments were not royalties, the bench unanimously concluded that, royalty or not, the sums were not income that could attract withholding tax for Pepsi. The majority determined that sums remitted to a Pepsi entity—PepsiCo Beverage Singapore Pty Ltd—did not constitute royalties. Even on the contrary assumption, no withholding would arise because Schweppes was obliged by contract to buy the concentrate on terms dictated by Pepsi, the court observed. Under the arrangement, Pepsi and its affiliate Stokely‑Van Camp Inc, owner of Gatorade, each undertook to “sell or cause to be sold by one of its subsidiaries” the concentrate to Schweppes. In the majority’s view, this was simply a supply agreement for concentrates between PepsiCo Beverage Singapore and Schweppes...

What does this Practice Note cover? This Practice Note outlines the principal provisions that apply to both the 1992 ISDA Master Agreement (Multicurrency—Cross Border) (the 1992 Agreement) and the 2002 ISDA Master Agreement (the 2002 Agreement), together with their accompanying schedules. Unless indicated otherwise, any reference here to the master agreements (the ISDA master agreement) should be read as a reference to both the 1992 and 2002 Agreements. For a comparison of the two forms, see Practice Note: ISDA documentation—comparison of the 1992 and 2002 master agreements; for the broader ISDA documentation framework, see Practice Note: Derivatives—ISDA documentation framework. The key concepts underpinning the ISDA master agreement The ISDA master agreement rests on three core concepts, outlined briefly below: single agreement flawed asset close-out netting Single agreement Under ISDA’s documentation architecture, every derivative transaction between a pair of counterparties is captured under one overarching agreement (implemented through multiple layers of documentation), as provided in Section 1(c) of the...

Introduction and context This Practice Note provides a summary of the taxation of internationally mobile employees in relation to securities options (Options) charged to tax within Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). On 30 October 2024, as part of the Autumn Budget 2024 announcements, the Labour government confirmed that it would proceed with the former Conservative government’s plans to abolish the remittance basis of taxation and replace it with a residence‑based regime, scheduled to commence on 6 April 2025. These changes were enacted through Finance Act 2025 (FA 2025) and have also affected, in particular, the availability and operation of overseas workday relief. This Practice Note reflects the current position under the new tax regime; however, the previous regime is still relevant for Options granted before 6 April 2025, because any elements of the Options’ ‘relevant period’ (see discussion below—broadly, the vesting period) that occur before 6 April 2025 remain subject to certain aspects of the earlier rules. For...

STOP PRESS: Abolition of non-dom regime and remittance basis of taxation from 2025–26 The Finance Act 2025 has scrapped the remittance basis and, from 6 April 2025, substitutes a residence-based system. The reforms bring in a new Foreign Income and Gains (FIG) regime and revise the rules for overseas workday relief. For detailed guidance on these updates, refer to Practice Note: The abolition of the remittance basis of taxation from 2025–26. The UK operates a comprehensive framework for taxing employment income. This Practice Note explains the core income tax principles for employment income and the way they attach to earnings. Keep in mind that any form of remuneration connected to an individual’s employment can give rise to income tax and National Insurance contributions (NICs) liabilities (for NICs, potentially affecting both employer and employee), together with possible apprenticeship levy costs for the employer. In addition, intricate provisions govern the withholding and collection of income tax on employment income and employee NICs under the Pay As You Earn (PAYE) system. These...

this declaration of trust is entered into on [ insert date on which this declaration of trust is executed ] by: [ insert name of nominee ] of [ insert address of nominee ] [ , a company incorporated in England and Wales (registered number [ insert company number ]) ] (the Nominee ). BACKGROUND (A) On [ insert date on which LTIP Restricted Award was granted ] (the Date of Grant ), [ insert name of Participant ] (the Participant ) received a Restricted Award (the Award ) in respect of [ insert number and class of shares under Restricted Award ] in the share capital of [ insert name of company whose shares are subject to LTIP awards ] (the Company ) pursuant to the [ insert name of LTIP ] (the Plan ), and, accordingly, all Shares comprised in the Award have been allotted or conveyed to the Nominee to be retained subject to the Plan thereunder...

RULES OF THE [ insert name of company ] PHANTOM SHARE AWARD PLAN Adopted by the Board on [ insert date ] These Rules set out the Phantom Share Award Plan. Awards are Units giving a cash Award Payment equal to the difference between Base Value (Market Value at the Award Date or as set by the Board) and Exit Value on an Exit (Takeover or Listing). Awards are granted at the Board’s discretion to Eligible Employees under an Award Agreement and are non-transferable (save on death). No right to Shares. Participants indemnify Tax Liability; withholding may apply. Vesting: subject to Conditions, Awards Vest on Exit; cash within 30 days. Exchange Offer on Takeovers; employee ownership trust acquisition may not trigger Vesting. Leavers: lapse unless death, incapacity, retirement or Board-approved; pro-rating may apply; Board may accelerate and set extent/date. Liquidation: Board decides extent of Vesting; if winding-up passes, unvested lapse. Capital changes: Board may adjust Units fairly and appropriately. Employment: no...

1 Deductions from payments and indemnity for tax deductions 1.1 [ Subject to any contrary provision in this Agreement, ] the Company will pay the Shareholders [ all amounts due under this Agreement ] free from deductions of any kind or any withholdings, except to the extent required by applicable law...