Dear Contractor Doctor,
I’ve just won a contract with a new overseas client. The contract is via an agency, which is asking for all the usual company details, such as my company number and certificate of incorporation, registered address and VAT number, which are no problem for me to supply.
However, the agency is also requesting that I supply a tax clearance certificate. Despite having been a contractor for over ten years, I’ve never come across this requirement before.
How do I supply a tax clearance certificate?
Contractor Doctor says:
Depending on the exact requirements of the agency or client, a tax clearance certificate represents confirmation from HMRC that a company’s or individual’s tax affairs are in order. It also confirms where a company or individual is domiciled for tax purposes.
Multi-national firms contracting with a UK-based business may require this confirmation to ensure they conform with the requirements of international tax treaties on double taxation, and to satisfy internal governance and compliance requirements.
Contractors failing to supply a certificate, or equivalent confirmation in writing from HMRC, may find that they are subject to withholding taxes imposed by the client or agency, where local tax legislation might require deduction of tax from a contractor’s fees at source. Some clients may even refuse to do business with a contractor who cannot supply the paperwork.
What is a tax clearance certificate?
The client or agency is ultimately seeking to confirm that the contractor’s business, and sometimes the contractor individually, is registered for and up-to-date with payments for statutory taxation in their country of domicile. In the UK, this means requesting specific documents from HMRC.
Depending on the exact requirements of the client or agency, it could take the form of:
- A letter from HMRC’s corporation tax office confirming the contractor’s limited company is current and compliant with all its statutory tax obligations
- A certificate of residence for an individual or a certificate of residence for a company, confirming where the individual or company is domiciled for tax purposes
- Confirmation of payroll tax registration and that all payments are up-to-date, which in the UK comes under the Pay As You Earn (PAYE) scheme
- Confirmation of sales tax registration and that all payments are up-to-date, which in the UK refers to Value Added Tax (VAT).
Contractors failing to supply a certificate, or equivalent confirmation in writing from HMRC, may find that they are subject to withholding taxes imposed by the client or agency
If the reason behind the agency’s or client’s request is to prevent withholding taxes due under local tax legislation, a certificate of residence would normally suffice. Clients with tight corporate governance and internal compliance rules may request further evidence from contractors that their tax affairs are in order.
How to obtain tax clearance documentation
Contractors should start the process with their tax advisor, usually their accountant, who will have established links with HMRC’s local and central offices that deal with such requests.
Contractors can apply for an individual certificate of residence online, and should have their personal, employer and agent (accountant) details to hand before starting the process.
Gaining a certificate of residence for a contractor limited company can be more complex. A contractor’s local HMRC may issue a certificate of residence, but it is likely that contractors will have to contact the Corporation Tax International, Anti-Avoidance (CTIAA) team with their request.
If a contractor’s accountant does not deal with payroll and PAYE, requests regarding PAYE can be directed to HMRC’s Shipley or Cumbernauld offices. HMRC will respond to VAT enquiries by email, or via the VAT Written Enquiries Team in Southend.
Good luck with your contracting!