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HMRC internal manual

International Manual

UK residents with foreign income or gains: dividends: Paying agents

Payments up to 5th April 2001

Where dividends or interest, other than foreign bank deposit interest, from abroad were paid through a paying agent in the UK (ICTA88/S118B) or collected, etc. by a banker etc. in the UK (ICTA88/S118C) the paying agent or banker etc. was generally required to deduct UK Income Tax.

Paying agents, bankers etc. were authorised to allow credit automatically for withholding tax on dividends and interest. Full details of this arrangement are in the Guidance Notes for collecting agents (para. 10.5 onwards) and the Guidance Notes for paying agents (para. 9.8 onwards).

In addition paying agents entrusted with the payment of dividends or interest from abroad could be authorised to allow provisional relief for foreign withholding taxes not included in the Circular.

An agent who gave provisional relief was required to show on the dividend voucher the gross amount of the dividend and how the amounts of tax had been computed. The certificate of deduction of tax will show where credit for foreign tax is allowed, for example

Gross amount of dividend 100.00
Less foreign tax deducted at 15% 15.00
Less UK tax at 5% on 100 5.00
Net amount of payment 80.00

Payments from April 2001

The Paying and Collecting Agents schemes were abolished from April 2001. UK paying and collecting agents (mainly banks and stockbrokers) are no longer required to deduct income tax when paying or collecting interest on quoted UK Eurobonds or foreign dividends and interest. The arrangements under which paying agents previously deducted tax from payments of UK public revenue dividends were replaced by new arrangements provided for in clause 111 of FA 2000.

In future all interest on quoted Eurobonds will be paid gross. The definition of quoted Eurobond was also updated to ensure that bonds will no longer have to be issued in bearer form in order to fall within the definition and be free of withholding tax.