Foreign Withholding Tax
You may be taxed on your foreign income by the UK and by the country where your income is from.
Usually, you should apply for tax relief before you get taxed on the foreign income. Your foreign publisher or agent will give you a foreign tax form to complete and send to HMRC. HMRC will then confirm whether you are resident by stamping and sending the form back to you. Sometimes you can write to HMRC and as for a UK certificate of residence instead of or in conjunction with a form . Once you’ve got the required forms, send them to your agent or foreign publisher to reduce the rate of tax withheld.
You can usually claim Foreign Tax Credit Relief when you complete your income tax return. How much relief you get depends on the UK’s ‘double-taxation agreement’ with the country your income’s from. You usually still get relief even if there is not an agreement unless the foreign tax does not relate to UK Income Tax.
The amount of credit you receive in the UK is capped at the lower of the UK rate of tax or the amount of tax deducted.
Example
An author has a film option with a US company, the US company must withhold 30% tax unless the author completes a withholding tax form to reduce the tax rate to 0%.
If the author only pays UK tax at 20%, as a result if they do not complete the withholding tax form they will only get tax relief on 20% of the income but will have paid tax at 30%.
If the author pays UK tax at 40%, if they do not complete the withholding tax form they will get tax relief at 30% of the income and will still have 10% tax to pay in the UK.
The best outcome is for the author to complete the foreign tax form and only pay tax in the UK to avoid the risk of a partial tax credit.
If you re struggling with these forms get in touch to see how we can help.
