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Withholding tax = tax evasion, right?
Wrong. Keep reading to learn exactly what it is and whether or not it’s classed as an expense.
Yep. Listen up.
Did you know that foreign entertainers and athletes (and those who hire them) pay UK tax on performances/competitions that take place in the UK?
Whether you’re Lady Gaga, the next Rafael Nadal, or simply the person that hires them for a UK-based event, it’s important you know all about a little thing called withholding tax.
In the UK, if you pay foreign entertainers and/or sportspersons (who do not live in the UK) for a performance or appearance, you deduct income tax from their payment if the total amount exceeds their personal tax allowance threshold (£12,570 for 2023/24).
This is called withholding tax – a payment on account against the foreign entertainer or athlete’s final UK tax bill. It usually applies to the following:
If you pay the performer/athlete through a third party, you (the payer) are still responsible for deducting withholding tax. Before you make first payment, you also have to contact the Foreign Entertainers Unit (FEU) and register for withholding tax.
Ever come across the term ‘expanded withholding tax’ and wondered whether it’s relevant to you?
Expanded withholding tax is a type of tax prescribed on income payments in the Philippines – not in the UK. So unless you have an income source from the Philippines, then no, this term does not apply to you or the UK definition of withholding tax.
The types of entertainers and sports people that should have withholding tax deducted include:
For entertainers, they may appear individually or with others.
Let’s say you’re a promoter for the music festival Glastonbury. You agree to book the Canadian rapper Drake to perform for a fee of £40,000 (bargain!). Because £40,000 exceeds Drake’s UK personal allowance, you need to withhold the basic rate tax (20%) from the payment.
For most payments over the personal allowance, you (the payer) should deduct tax at the UK basic rate of Income Tax.”HMRC
That means that from the agreed £40,000:
If you know in advance that you’ll make more payments to the athlete/entertainer which exceed the personal allowance, you deduct tax from the first payment – even if the personal allowance hasn’t been reached.
There are a few instances in which you (the payer) do not have to deduct withholding tax. These include:
If the entertainer or sportsperson has a UK performance income in excess of the basic tax rate band (£50,270 for 2023/24), withholding tax might not be enough to cover their tax liability. Instead, HMRC might require them to file and complete a self assessment tax return to pay their share of tax, which TaxScouts can help with!
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