The Cost of “We Don’t Bother” Withholding Tax Policies

One of the more frustrating myths we come across when advising authors is the idea that any tax deducted overseas can simply be reclaimed against your UK tax bill.

Unfortunately, that’s not always true.

The issue has come into sharper focus recently as some literary agencies have introduced policies where they won’t process withholding tax paperwork for smaller advances. Instead, they’ll collect the income with the full overseas tax deduction and leave it at that.

At first glance, this might not seem like a big deal. After all, if tax has been paid overseas, surely it can just be offset against UK tax later?

Not necessarily.

How withholding tax is supposed to work

When a UK author receives income from overseas, the country making the payment will often want to deduct tax before the money is paid out.

Without any special arrangements, that deduction can be significant. France, for example, typically applies withholding tax at 25%.

Fortunately, the UK has double taxation treaties with many countries. These agreements are designed to stop the same income being taxed twice.

In many cases, if the correct paperwork is completed, the overseas withholding tax can be reduced or eliminated altogether.

For France, the treaty rate for many author payments can be reduced from 25% to 0%.

That’s a very different outcome.

The French example

Let’s say a UK author signs a French translation deal with a €3,000 advance.

If the appropriate treaty forms are completed and approved, the French publisher pays the full €3,000.

The author then declares that income on their UK tax return and pays UK tax in the normal way.

However, if no treaty paperwork is submitted, the French publisher may deduct 30% withholding tax before payment.

That’s €750 gone immediately.

The author receives only €2,250.

Many people assume that the €750 can simply be claimed back through their UK tax return.

In practice, it often can’t.

Why HMRC may not give relief

HMRC generally expects taxpayers to make reasonable efforts to claim the benefits available under a tax treaty.

If a treaty says France should deduct 0% and you choose not to complete the paperwork needed to achieve that result, HMRC may not allow relief for the tax that was deducted unnecessarily.

In simple terms:

• France was entitled to deduct 0% if the treaty procedure had been followed.
• France deducted 25% because the procedure wasn’t followed.
• HMRC may treat that 25% as avoidable foreign tax.

The result is that the withholding tax could become a real cost rather than a tax credit.

There may still be a possibility of reclaiming the tax directly from the foreign tax authority. However, that can be a lengthy and complicated process. Depending on the country involved, you may need to navigate forms in another language, provide supporting documentation and potentially take advice from a local tax specialist. By the time professional fees are taken into account, recovering the tax may not always be commercially worthwhile.

This is why we encourage authors to complete withholding tax paperwork when it is available, rather than assuming the problem can be fixed later.

Small advances can still mean large losses

One argument for not processing withholding tax paperwork on smaller deals is that the administration involved can outweigh the benefit.

From an agency’s perspective, that’s understandable.

From an author’s perspective, the calculation can look very different.

A £2,500 or £3,000 advance is not insignificant. A 25% deduction can easily mean hundreds of pounds disappearing.

For many authors, that is worth spending a few minutes completing forms and chasing HMRC.

The three-month trap

Another issue to watch for is deadlines.

Some agencies now operate a policy where withholding tax forms must be completed and returned within a set period, often around three months.

Miss the deadline and the agency may proceed without the paperwork, meaning the full withholding tax is deducted.

Authors should therefore treat these forms as time-sensitive. Putting them to one side for later can become an expensive mistake.

What authors should do

If your agent or publisher sends you withholding tax forms:

• Read them promptly.
• Complete them as soon as possible.
• Keep copies.
• Chase HMRC if approval is taking longer than expected.
• Don’t assume overseas tax can always be recovered through your UK tax return, or that reclaiming it from the overseas tax authority will be straightforward.

Most importantly, don’t rely on the common belief that “it will all come out in the wash on the tax return”.

Sometimes it does. Often it doesn’t.

And when countries such as France are involved, the cost of getting it wrong can be surprisingly high.