This clause says the other party will deduct taxes from your payment before giving you the money—usually because you're a contractor or foreign supplier. For example, if you invoice for £10,000 and they're required to withhold 20% tax, you only receive £8,000 and they send £2,000 to the tax authority on your behalf. This is "low risk" because it's often legally required (especially in the US under IRS rules and in the UK for non-residents). The clause matters because it affects your actual cash received, and you need to know whether you'll get a tax credit later to avoid paying twice.
Ask the other party to provide written proof of any tax withheld (a withholding certificate) so you can claim a credit against your own taxes and avoid double taxation. Clarify upfront whether withholding applies to you—many UK residents and established businesses are exempt—and get written confirmation if you're exempt. ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause says the other party will deduct taxes from your payment before giving you the money—usually because you're a contractor or foreign supplier.
Why should I care about this clause?
For example, if you invoice for £10,000 and they're required to withhold 20% tax, you only receive £8,000 and they send £2,000 to the tax authority on your behalf.
What are my options?
This is "low risk" because it's often legally required (especially in the US under IRS rules and in the UK for non-residents).
How does this affect small businesses?
The clause matters because it affects your actual cash received, and you need to know whether you'll get a tax credit later to avoid paying twice.