Failure to withhold and report income tax to HMRC may result in interest and penalties being charged. Action requiredĪction may therefore need to be taken promptly to get a direction before making any payment of interest under any reduced rate. From 1 June 2021 the payer will need to refer to the relevant double tax treaty and if a reduction or elimination of the domestic rate is available the payer may make such a payment without seeking a direction from HMRC if the payer reasonably believes that the conditions of that treaty of met. Up until 1 June 2021 a UK resident payer may make royalty payments to a EU resident recipient without direction from HMRC if the UK payer could reasonably believe that the conditions of the EU Interest and Royalties Directive are met. Where a reduction is available, the UK payer will need to apply for and seek direction from HM Revenue & Customs (HMRC) to pay the reduced rate before any payment is made. Interestįrom 1 January 2021 a UK resident payer of interest needs to consider whether the domestic rate can be reduced or eliminated under a double tax treaty between the UK and the recipient’s territory of residence. There is no withholding requirement for dividend payments. UK domestic law requires a UK payer to withhold income tax of 20% on the payment of interest and royalties to non-residents. How will this change affect UK companies making relevant payments? However, for UK companies paying interest or royalties, the EU Interest and Royalties Directive was written into UK domestic law and so continues to apply but only until 1 June 2021 when they will be repealed as announced in the 2021 Budget. The tax treatment of the payments reverted to the domestic law of the paying company and the position set out in the relevant double tax treaty with the UK. For UK companies receiving interest, royalties and dividends, these Directives ceased to apply from 1 January 2021. Previously, the tax treatment for the paying entity was typically determined by the EU Parent-Subsidiary Directive and the EU Interest and Royalty Directive.

At 11:00pm on 31 December 2020, the Brexit transition period ended and the tax position for UK companies changed where they pay or receive interest, royalties and dividends to or from related parties that are resident in the EU.

January spotify receipt