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bigduckontax, Accountant
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A client, which is a limited company formed in Scotland, has

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A client, which is a limited company formed in Scotland, has a contract in Norway which covers several months. Withholding tax has been deducted which is based on the sales value as shown on the sales invoice. The tax authorities in Norway have sent us a form describing it as withholding tax while the director is named along with the company.
Our client describes it as withholding income tax.

My questions are; is it a payroll tax and do I show it as an expense in the accounts and there is no adjustment required in the corporation tax return OR
should form part of the Directors loan account and he would claim relief on his tax return.
Hello, I'm Keith and happy to help you with your question.

My interpretation is that the company issued the invoices and Norway applied a witholding tax. Thus this would, under the double taxation treaty between the UK and Norway, be a tax credit for a subsequent Corporation Tax assessment. The fact that Norway has named a director may stem from a lack of understanding of UK law where shareholders, directors and the company itself are legally separate persons. I would be inclined to enquire of HMRC which way this cat should jump.

If it is an income withholding tax than your proposed treatment through the director's loan account would appear correct.
Customer: replied 4 years ago.

You mentioned that it is possibly corporation tax but subsequently you say if it is income tax then recovery would be reflected on his tax return.

On the form I mentioned above which is in Norwegian it shows a figure for salary { which is an estimate} and subsistence costs { again an estimate}. This suggests to me it is income tax. Bearing that in mind could it be shown as part of payroll costs in the accounts . If is part of the cost of employment then there would be no adjustment in the corporation tax computation.


The sum of withholding tax is large and unless the Director took a substantial salary he would never be in a position to use it while his loan account would be in debit.


Could you give me your thoughts on the above.


Thank you.

I gave you the two answers depending upon whether the tax credits were either for Corporation Tax (CT) purposes or for Income Tax. The fact that they are so big that they could never be recover through the latter points to them being CT tax credits.

Where did the Norwegian authorities get the idea that the invoices were personal income? There is a terrible danger here of this withheld tax being incapable of reclamation. You could post the moneys received as debit cash/bank credit debtors and payroll costs, but it's the ultimate recovery of the credit which would worry me.
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