13 September 2026 – written by Steffen Kemmerzehl – Friendly Assist Accountancy – The Accounting Hub
International business does not always look particularly international anymore. You might run a consultancy from home and have a customer in Dubai. Your small software company might use developers in Pakistan and sell to businesses in India. Perhaps you buy products from China, have an American client who asks you to complete unfamiliar tax forms, or have started doing work for a company in Nigeria.
Everything can run perfectly normally until somebody mentions withholding tax, asks for a tax residence certificate, or pays £8,000 against your £10,000 invoice.
That is usually when we hear the question: “Am I now going to pay tax twice?”
The answer is often no, or at least not in full. But it is worth checking what has actually happened before treating the missing money as simply another business expense.
Why did my overseas customer deduct tax from my invoice?
Some countries require customers to deduct withholding tax from certain payments made to overseas businesses.
This can affect consultancy, technical services, software, royalties, licensing and other payments.
The UK Government gives a straightforward example: if a UK company invoices £10,000 and the overseas country applies 20% withholding tax, the customer may pay only £8,000 to the UK company and send the other £2,000 to its tax authority. The Government specifically recommends checking this before quoting for overseas work.
That matters when pricing a job. Agreeing £20,000 and receiving £16,000 is very different from knowing about the deduction before you sign the contract.
“But the UK has a double tax treaty with them”
This is where things get more interesting. The UK has Double Taxation Agreements with many countries, including important markets for small UK businesses such as the US, India, UAE, Pakistan, Singapore, Nigeria and South Africa.
A treaty can determine which country can tax particular income and may reduce the amount of foreign tax that should be withheld. It does not mean that every payment automatically arrives tax free. The type of payment matters too. A normal business profit, technical service, royalty or interest payment can fall under different treaty provisions. This is why an IT consultant invoicing an Indian company may have a different problem from a UK online retailer buying products from India.
HMRC’s own guidance confirms that the particular terms of the relevant Double Taxation Agreement need to be considered.
India, Pakistan and Bangladesh: common connections, different rules
These countries are particularly relevant because plenty of UK owner-managed businesses have commercial, professional or family connections there.
A situation we often see generally looks something like this:
A UK business owner knows somebody overseas, which leads to a customer, supplier or contractor relationship. Initially the amounts are small, so nobody thinks much about international tax. Then the relationship grows. Suddenly £30,000 or £50,000 a year is moving between the two countries and somebody asks whether tax should have been withheld.
The important thing is not to assume that because something worked one way with an Indian customer, it will work the same way with Pakistan or Bangladesh. Treaty provisions and domestic tax rules differ. For larger contracts, it is worth establishing the position before agreeing the price.
Dubai and the UAE: “I still have a UK Ltd company”
Another increasingly common situation is a UK business owner developing connections with Dubai. Perhaps you have acquired a UAE customer. Perhaps you are spending more time there yourself. Or maybe you are considering moving there while keeping your UK company.
Those are three different situations. Having a UK limited company does not automatically mean everything the business does will only ever be taxed in Britain. O“If you start running your UK company from Dubai, regularly work there yourself, hire someone locally or open an office, the position can change. You may then need to look at where the company is actually managed, whether it has created a taxable presence overseas, and what happens to your own UK tax residence.”We cover this separately in our international and expat tax guidance.
China and Hong Kong: don’t put them in the same tax box
Another familiar small-business situation is buying products or services from China while dealing with a Hong Kong company somewhere in the chain. China and Hong Kong have separate tax systems. That distinction can become important when money is paid for consultancy, intellectual property, software or other services rather than simply purchasing goods.
There can also be a separate VAT question. Double tax treaties generally concern direct taxation. They do not replace VAT, GST and similar indirect taxes. If your business is starting to sell internationally, our VAT support can help with the UK side and establish where further overseas advice may be needed.
America can be surprisingly complicated too
The US often feels simpler because British businesses are so used to dealing with American companies. Then a customer sends over a W-8BEN-E, somebody mentions withholding, or the business starts selling significantly into one particular state. There is a comprehensive UK-US tax treaty, but America also has state taxation.
So “there’s a treaty” should not be the end of the investigation. The same goes for hiring somebody in America or having someone regularly conduct business there. A few overseas customers are one thing. Developing an actual business presence there can be another.
What if there isn’t a useful tax treaty?
This is where business owners can become understandably nervous. Angola is a good example of a country where a UK business may encounter this problem. No comprehensive treaty does not necessarily mean you simply pay the full tax twice. The UK has unilateral double taxation relief provisions which can allow credit for qualifying foreign taxes even where there is no Double Taxation Agreement. HMRC expressly provides for this.
But you need to know what the foreign deduction actually was. Not every overseas tax, charge or levy automatically becomes a credit against your UK Corporation Tax.
“I’ve already paid tax abroad. Can’t I just deduct it from my UK tax?”
Sometimes relief is available, but there is an important limitation. Foreign Tax Credit Relief is generally restricted to the lower of the qualifying foreign tax and the UK tax attributable to the same income. HMRC confirms this principle in its international guidance.
So if £3,000 has been deducted overseas, that does not automatically mean your UK Corporation Tax bill falls by £3,000. Sometimes the foreign country deducted too much under the relevant treaty. In that situation, part of the solution may be claiming money back overseas rather than asking HMRC to give credit for all of it. This is why we would normally want to see the invoice, contract and evidence showing exactly what foreign tax was deducted.
Don’t forget VAT
There is another question we regularly see:
“My customer is abroad, so I don’t charge VAT, right?”
Often that may be correct for general B2B services, depending on where the customer belongs, but there are exceptions. The place-of-supply rules determine where services are treated as supplied, and special rules apply to some types of service. The Government’s exporting guidance specifically warns businesses to consider VAT and taxation in the destination country. If you have customers in several countries, it is worth checking rather than applying the same VAT treatment to every overseas invoice.
Before signing a large overseas contract
You do not necessarily need specialist international tax advice because somebody in Germany bought £500 of work from you.
For a more substantial overseas relationship, though, I would want to know:
- Which country is actually paying you?
- What are they paying you for?
- Will they deduct withholding tax?
- Does a Double Taxation Agreement apply?
- Will you or your employees physically work in that country?
- Could you be creating a local taxable presence?
- What happens for VAT or other indirect taxes?
And if foreign tax has already been deducted, keep the certificate or other evidence showing what was paid.
If you invoiced £10,000 and received £8,000, don’t simply assume your turnover was £8,000.
Your business might be more international than you realised
A lot of businesses we would describe as international are actually quite small.
There may be no foreign office and no international finance department. It might just be one or two directors, a laptop, a UK limited company and customers or contractors scattered around the world. That is exactly why these issues can get missed.
At Friendly Assist Accountancy, we work with UK businesses and individuals where tax does not fit neatly into one country. We can help look at the UK tax position, Corporation Tax, VAT, foreign income and double taxation relief, and help work out which questions need answering overseas.
We are also happy to say when local advice is needed. You do not need somebody pretending to know every tax system in the world. You need somebody who can understand what has happened, deal with the UK side properly and help you work out the next step.
If you are considering your first substantial overseas contract, have already had foreign tax taken from an invoice, or your business has simply become more international over time, get in touch with Friendly Assist Accountancy.
Send us the country, invoice amount and what the payment was for, and we can tell you what we would need to review the UK position
I’m Steffen Kemmerzehl, an AAT Licensed Accountant at Friendly Assist Accountancy. I work with UK and international clients on tax residence, overseas income, pensions, property and other cross-border UK tax matters.
Please get in touch if you’re interested in arranging an appointment.
Useful resources
UK Government: Understanding withholding tax when exporting a service