Latest HMRC guidance on interest, royalties and dividends if the UK leaves the EU without a deal

28 March 2019

The threat of a no deal Brexit is becoming very real as the Prime Minister struggles again this week to get Parliament to agree on her deal.

With tensions and uncertainty rising, HMRC’s guidance published last week provides clarification on what may happen to interest, royalties and dividends with payments flowing between the EU and UK in the event of a no deal Brexit.

Important points to note in the event of a no-deal Brexit are:

  • The way that interest, royalties and dividends are paid between UK and EU companies may change
  • You may be able to claim full or partial exemption or claim back some or all of the tax on interest, royalties and dividends
  • The EU Interest and Royalties Directive (IRD), allowing EU companies to make certain interest and royalties payments within the EU without needing to deduct tax from them, will no longer apply to the UK
  • Some EU member states may start to deduct tax from interest and royalty payments that used to be exempt under the IRD
  • UK companies, and EU companies based in the UK, that make payments of interest and royalties to associated companies in the EU will not need to start deducting tax from these payments
  • The Parent Subsidiary Directive (PSD), which means that associated companies in different EU member states do not have to deduct tax on certain payments of dividends, will no longer apply 
  • Some EU member states may start to deduct tax from some dividend payments that used to be exempt under the PSD
  •  No effect on dividends paid by UK companies to companies resident in the EU – UK companies may continue to pay their dividends gross

Click here to read the latest guidance in full on HMRC’s website

Can we help?

If you are unsure about how a no deal Brexit could affect you, then we would strongly advise you to contact your local tax adviser. Alternatively, you can contact me on 020 7216 4686, or d.cohen@uhy-uk.com.

To read more about Brexit issues, visit our designated page here.