HM Revenue & Customs (HMRC) has suspended a significant administrative concession, creating immediate complications for UK businesses involved in international finance and mergers & acquisitions.
What Rule Has Been Paused?
The tax authority confirmed it has paused a long-standing concession that dealt with failures to withhold income tax from payments of UK source yearly interest sent to overseas lenders. This rule was crucial for UK borrowers who qualified for relief under a Double Taxation Agreement (DTA) but had not obtained prior HMRC clearance to pay the interest 'gross'—that is, without deducting tax.
Under the now-paused concession, borrowers who made an administrative error could submit a voluntary disclosure. In qualifying cases, HMRC would then assess them only for late payment interest, rather than demanding the full, unpaid tax amount.
Immediate Consequences for Business Deals
The pause, announced on 23 December 2025, has direct and serious implications. Law firm Travers Smith warned that the move may slow and complicate UK cross-border financing and M&A transactions. During due diligence, failures to file for DTA relief are frequently uncovered, and this pause removes a key remedial process.
The firm highlighted that this creates a tangible cash flow risk and administrative burden. The borrower remains legally obligated to withhold and account for the tax, and HMRC will seek to recover any unpaid tax from them. However, the overseas lender must now apply for DTA relief and for any repayment of UK tax that was withheld or assessed, adding layers of complexity.
HMRC's Statement and Next Steps
In its updated guidance, HMRC stated: "HMRC is currently undertaking a review of these processes and the relevant legislation. Whilst this review is being undertaken, it has proven necessary to pause the processing of disclosures of failures to comply with the requirement."
The revenue body emphasised that borrowers must still disclose any non-compliance without delay. It added that following the review, it will make any required changes to its manual, including the fate of the concession to assess only late payment interest.
For now, the suspension leaves a gap in the process for rectifying errors, placing a new onus on both UK borrowers and their overseas lenders to navigate a more stringent and uncertain compliance landscape.
