A UK company owned by a director who lives in Dubai borrows from her, pays her interest every year, and never deducts any tax. That's a common setup, and if she is UAE resident under the UK-UAE treaty, the treaty can reduce the UK tax on that interest to nil. But relief has to be claimed. Until it is, HMRC treats the gross payments as a failure to deduct withholding tax on interest, and on 2 November 2026 it changed how you fix that.
TL;DR: UK companies must normally deduct income tax (20% now, 22% from 6 April 2027) from yearly interest paid to an overseas lender unless HMRC has issued a direction. From 2 November 2026, HMRC's interest-only concession for missed deductions is gone. The company must file a formal treaty relief claim, one form per loan and lender, within four years of the end of the tax year.
What Did HMRC Change on 2 November 2026?
HMRC withdrew a long-standing concession. Under it, a borrower that disclosed a missed deduction could often pay only late payment interest, with no assessment of the tax itself, if the lender would have qualified for treaty relief anyway. HMRC says the withdrawal "applies to all disclosures of failures to deduct withholding tax received on or after" 2 November 2026, including disclosures of failures in earlier periods (HMRC INTM413232, 2026). It had been paused since around the start of 2025 (Travers Smith, 2026).
In its place, HMRC published three new manual pages, INTM413232 to INTM413236, and a claim form for payers. The outcome can look similar: the treaty-relieved tax is discharged and you pay interest for the period of the failure. What changed is the process, which is now a formal claim with a time limit, evidence rules, enquiry powers and penalties for errors.
Who Has to Deduct Tax From Interest in the First Place?
Any company paying yearly interest that arises in the UK must deduct tax, subject to a few exemptions, and so must anyone paying it to a lender whose usual place of abode is outside the UK (HMRC SAIM9070, 2026). The rate is the savings basic rate for the tax year of payment: 20% today (HMRC CT61, 2026), rising to 22% for payments from 6 April 2027 (HMRC technical note, 2025).
"Yearly" interest broadly means interest on a loan intended to last a year or more, judged on what the parties intended (HMRC SAIM9075, 2026). A shareholder loan that works as long-term funding usually counts, even if it's repayable on demand.
The company reports the tax on form CT61 for each quarterly return period and pays it within 14 days of the period end (HMRC CT61 notes, 2010). In our experience, small companies with a director's loan from abroad rarely know CT61 exists until an accountant asks about it at year end.
Does the UK-UAE Treaty Mean You Owe Nothing?
It depends on who the lender is. Under Article 11 of the UK-UAE double taxation convention, UK interest beneficially owned by a UAE resident is taxable only in the UAE if that lender is an individual, a listed company, a pension scheme or an unrelated bank. A privately owned UAE company qualifies only if the competent authority decides it wasn't set up mainly to get the treaty benefit.
The treaty doesn't remove the duty to deduct, though. Relief at source needs a direction from HMRC before the interest is paid. Without one, the company should deduct the tax and the lender reclaims it.
The treaty only covers interest at a commercial rate. If a related lender charges more than an unconnected lender would, Article 11(7) leaves the excess taxable in the UK.
How Does the New Claim Work?
The paying company makes the claim, not the lender. HMRC is explicit that it "will not accept a claim from the lender where the payer made no deduction" (HMRC INTM413232, 2026). One question clients always ask is whether the director in Dubai can sort it out from her end. Under these rules she can't.
The claim needs one form per loan and per lender. You'll need:
- payment dates, amounts and any tax actually deducted
- the treaty article and rate you're relying on, and why its conditions are met
- a certificate of residence from the lender's tax authority (for a UAE individual, a UAE Tax Residency Certificate)
- the lender's declaration that they beneficially own the interest, and a company officer's signed declaration that the claim is correct
Small businesses email it to whttreatyreliefclaimssbi@hmrc.gov.uk, the address on the claim guidance page. HMRC's internal manual words it differently, so use the guidance page version (HMRC INTM413234, 2026).
What Does a Late Claim Cost?
Late payment interest runs from the date the tax was originally due until you submit a valid claim or pay the tax, whichever comes first (HMRC INTM413236, 2026).
HMRC's late payment rate has been 7.75% since 9 January 2026 and rises to 8.00% from 24 November 2026 (HMRC, 2026).
There are two penalty risks as well. An inaccurate claim can be penalised under Schedule 24 of the Finance Act 2007. HMRC also says it will consider a separate penalty for an inaccurate CT61 return, "even where relief is subsequently claimed" (HMRC INTM413236, 2026). Making a claim doesn't wipe out the original reporting failure.
The Four-Year Window for Past Payments
You have four years from the end of the tax year in which the interest was paid. HMRC's own example is that interest paid in 2023-24 must be claimed by 5 April 2028 (GOV.UK, 2026). On the same rule, the deadline for interest paid in 2022-23 is 5 April 2027.
Take a Dubai-resident director who lent her UK company £150,000 in March 2022 at a commercial 7%. The company has paid her £10,500 gross every March since, starting in March 2023. It should have withheld £2,100 from each payment, so the four payments in 2022-23 to 2025-26 leave £8,400 of tax to be discharged through the claim. The 2022-23 payment drops out of reach on 5 April 2027, and the March 2027 payment needs either a direction or a deduction at 20%.
For years already outside the window, HMRC points to the treaty's mutual agreement procedure, which is slower and less certain.
What Should UAE-Linked Companies Do Now?
List every loan into the company from someone outside the UK, including shareholder and director loans, and check whether interest was paid gross without a direction. What we see most often is a loan agreement drafted with no thought to withholding at all.
For past payments, get the lender's residence certificate and beneficial ownership declaration, and file the claim before the oldest year drops out. For future payments, get a direction from HMRC so the company can pay gross. The lender applies, on form DT-Individual or DT-Company, with their UAE residence certificate attached, and HMRC confirms that this route is unaffected by the change (HMRC INTM413205, 2026). Until the direction arrives, deduct the tax and file CT61.
If the lender is a UAE holding company rather than an individual, take advice first. The treaty test for private companies is narrower, and a weak claim carries a penalty risk. Our tax services cover cross-border structures like this.
Frequently Asked Questions
What if the director who lent the money lives in the UK?
The company still has to deduct tax (20% now, 22% from 6 April 2027) and file CT61, because the duty applies to yearly interest a company pays to an individual. There's no treaty to claim, but the director gets credit for the tax deducted on their Self Assessment return. Our guide to directors' loan accounts covers the wider rules.
We disclosed before 2 November and heard nothing back. What now?
If it's within HMRC's processing pause, you don't need to contact HMRC yet. You can make a claim under the new route now, within the time limits, quoting your original disclosure date and reference, and that also resolves the disclosure. HMRC will hold off calculating the late payment interest until it decides how paused cases are treated (HMRC INTM413205, 2026).
Does a UAE company lending to its UK subsidiary qualify?
Only if it fits one of the Article 11 categories. A listed company or an unrelated bank can qualify without a separate decision from the authorities. A privately owned holding company qualifies only if the authorities accept that it wasn't set up mainly to obtain the treaty benefit, so expect closer scrutiny.
Does the lender's UK tax position change?
Not where the payer made no deduction. HMRC limits the lender's liability to the amount actually deducted, which is nil, so the charge sits with the company. For the lender's wider UK position, see our post on the UK personal allowance for UAE residents.
If your UK company pays interest to a lender in Dubai or elsewhere, get in touch. We'll review your loan agreements, work out which years are still open, and prepare the treaty claim and the direction for future payments.