HMRC’s new withholding tax claims process receives mixed reception from tax experts

The updated guidance formally withdraws HMRC’s longstanding administrative concession and introduces a new claims process allowing taxpayers to seek relief where an overseas lender would have qualified for double tax treaty benefits.

The new guidance confirms that, with effect from 2 November 2026, any payer of interest that discovers it has failed to withhold can now submit a claim, using a specific claim form published alongside the guidance. The claim form requires the payer of interest to provide details of the loan, the interest payments, and evidence that the lender would have been entitled to treaty relief at the time the interest was paid. The claim form must be submitted within four years of the end of the tax year that the claim relates to. Each claim form can cover a single loan and a single lender, but can include more than one interest payment made under that loan.

Where HMRC accepts the claim, it will grant relief from the withholding obligation.

In practice, the outcome should be similar to that achieved under the former concession. HMRC will charge late payment interest on the amount that should have been withheld, calculated from the original due date until the relief claim is submitted, but will not seek to recover the underlying tax where a valid claim is made.

Eloise Walker, corporate tax expert at Pinsent Masons, said: “Whilst it is disappointing that HMRC is still looking to recover late payment interest for withholding tax payments that were never properly due to it in the first place due to the availability of treaty relief, it is positive that HMRC is finally communicating about how it is seeking to resolve uncertainty about the treatment of treaty relief claims that would have fallen within the former – paused – concession.”

Under UK tax rules, borrowers can be required to withhold income tax from payments of UK source yearly interest. Withholding obligations are often disapplied where certain conditions are met. However, taxpayers are generally required to receive a direction from HMRC before making payments without deduction of tax where the exemption relates to eligibility under a UK double tax treaty.

Failure to withhold puts the taxpayer in a non-compliant situation, potentially exposing them to assessments of tax, interest and penalties. However, HMRC historically operated a concession where the lender would have been entitled to treaty relief in any event. In those circumstances, HMRC generally limited its recovery to late payment interest at most rather than seeking the underlying tax itself, since it accepted that if tax had been properly withheld and paid over to HMRC, the lender could have made a claim for repayment under the double tax treaty and, therefore, HMRC would not have retained the withheld sum in any event.  

HMRC suspended processing disclosures made under that concession in December 2025 while it reviewed its position, creating uncertainty for taxpayers seeking to regularise historic issues.

“Taxpayers should be aware that the new process differs administratively from the previous concession, and the onus is now on borrowers as the payers to complete the relief claim form. This may not always be straightforward as they may need information and cooperation from lenders to complete that form,” said Walker.

“HMRC’s guidance also raises uncertainty about whether borrowers could be exposed to penalties for failing to deduct withholding tax prior to claiming relief. Initial HMRC guidance published on 2 November states that penalties will only be charged for inaccurate claims for relief; however, the technical guidance that has since been published says that notwithstanding whether relief is successfully claimed, HMRC may still consider whether a penalty is due for filing an inaccurate quarterly return. Urgent clarification is needed on this issue,” she said.

The guidance also raises questions about disclosures made before 2 November. HMRC has confirmed that it is still considering how to deal with these disclosures, which are within the pause on processing the concession, and that it will be publish further guidance in due course. However, the guidance also suggests that payers of interest who have already submitted a disclosure to HMRC are able to make a claim for relief under the new process in the meantime, so long as they are within the four-year time limit.

Jake Landman, tax law expert at Pinsent Masons, said: “While the position is not yet completely clear for those who have already identified their past non-compliance and attempted to regularise it with HMRC during the ‘pause’, HMRC has confirmed that settlement of a claim under the new claim form will act as a settlement of the past disclosure.”

“This means that taxpayers have another option where they don’t want to simply wait for HMRC to confirm their position on paused disclosures,” he said.