HMRC has introduced a formal process for borrowers seeking treaty relief where they have paid UK-source yearly interest to an overseas lender without deducting the required withholding tax. The new procedure applies to disclosures received on or after 2 November 2026 and replaces the previous concessionary approach under which HMRC sometimes collected only late payment interest.
Previous concession
Previously HMRC offered a concession that often could remove the need to go through the full assessment and repayment cycle following a genuine withholding tax error. It applied where the overseas lender had clearance, or an established entitlement, to receive interest gross and would have been able to reclaim any tax deducted. A voluntary disclosure could therefore lead to an assessment for late-paid interest alone.
New guidance
Under HMRC’s guidance effective from 2 November 2026, Claim tax relief if you paid UK-source yearly interest to an overseas lender without deducting tax, and International Manual reference INTM413232, the borrower must make the claim where no tax was deducted. Relief depends on the lender having been resident in the relevant treaty territory when the interest was paid, the treaty limiting the UK’s taxing rights, and all applicable conditions being met. Claims must include evidence of tax residence and beneficial ownership.
The procedural rules require claims to be submitted outside a tax return, using a separate form for each loan and lender. The new form specifies the information and supporting evidence needed for a valid claim. Claims must be made within four years of the end of the relevant tax year.
Where a claim succeeds, relief is given by discharging unpaid tax or repaying tax already paid. However, late payment interest remains due, running from the original tax payment deadline until the earlier of payment of the tax or submission of a valid claim. Penalties may also apply.
Paused disclosures
Whilst HMRC undertook a review of these processes and the relevant legislation, it was deemed necessary to pause the processing of disclosures of failures to comply with the requirement. HMRC is still considering how to deal with disclosures made before 2 November 2026 and further guidance will be issued, albeit no date for the release of this guidance has been given. Borrowers with disclosures submitted before 2 November 2026 that remain paused may use the new process. While this could help resolve outstanding cases, the four-year claim limit means some periods covered by those disclosures may now be out of time.
Summary
Overall, the new framework offers a defined route to relief but places greater emphasis on timely claims and supporting evidence. Borrowers and advisers will need to assess the guidance alongside the forthcoming approach to paused historic disclosures to understand its full implications for withholding tax failures.
For further information on the above, please get in touch with your usual Crowe UK contact.
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