Dealing With Overseas Income as a UK Tax Resident Musician

How foreign withholding tax works and what to report on your UK tax return

Working abroad can be an exciting part of life as a freelance musician - but it’s also one of the areas where we see the most mistakes on UK Self Assessment tax returns.

Each year, performers trip up over:

• Overseas income reporting

• Foreign withholding tax

• How foreign tax credit relief actually works

If you’re UK tax resident musician, this guide will help you understand your obligations and avoid some very common (and costly) errors.

UK Tax Residents Must Declare Overseas Income

The starting point is simple but often misunderstood.

If you are UK tax resident, you must declare:

• Your worldwide income

• Your worldwide gains to HMRC.

This applies even if the work was carried out abroad and even if tax was already deducted overseas.

For example, if you perform a gig in the United States and tax is withheld at source, that income still must be included on your UK tax return.

Being taxed abroad does not remove the obligation to report the income in the UK.

Foreign Withholding Tax: A Common Source of Confusion

Many freelance musicians are subject to foreign withholding tax when working overseas, particularly performers working in countries like the US.

A very common issue we see is how income figures are recorded.

Often, musicians provide:

• The net amount received into their bank account

• Rather than the gross contracted fee

This matters because the banked amount is after withholding tax has already been deducted.

If you are planning to claim foreign tax credit relief, you must:

• Start from the gross income

• Not the net amount received

That means grossing up your income by adding back the tax that was withheld overseas.

Two Options: Deduction Relief or Foreign Tax Credit Relief

When overseas tax has been deducted, you generally have two compliant options in the UK.

Option 1: Deduction Relief (The Simpler Approach)

You can choose to:

• Declare only the net income received

• Ignore the overseas tax deduction entirely

This method is:

• Fully allowable

• Straightforward

• In some cases, the most beneficial option

It’s often used where simplicity is preferred or where the difference in outcome is minimal.

Option 2: Foreign Tax Credit Relief (Often More Beneficial)

Alternatively, you can:

• Declare the gross income

• Then claim foreign tax credit relief for the tax paid overseas

This approach is often more tax-efficient - but it must be done correctly.

And this is where another common mistake arises.

Foreign Tax Credit Relief Is Capped

When claiming foreign tax credit relief, the amount you can claim is limited.

You can only claim relief up to the lower of:

1. The tax actually paid in the overseas country

2. The UK tax due on that same income

For example:

• If you paid 30% withholding tax overseas

• But you are a UK basic rate taxpayer (20%)

Your relief is capped at 20%, not the full 30%.

Over-claiming foreign tax credit relief is something HMRC frequently challenges.

Don’t Forget Direct Expenses

Another area where people get muddled is expenses.

When HMRC calculates how much UK tax would apply to that overseas income, they look at the taxable profit, not the gross fee.

This means you must factor in direct expenses, such as:

• Agent commissions

• Travel costs

• Accommodation and subsistence (where allowable)

These expenses reduce the UK taxable amount - which in turn affects how much foreign tax credit relief you’re entitled to claim

Ignoring expenses can lead to overstated relief claims and compliance issues.

Key Takeaways for Musicians Working Overseas

If you’re earning Overseas Income as a UK Tax Resident, remember:

• Overseas income must always be declared in the UK

• Foreign withholding tax does not remove UK tax obligations

• Be clear whether you’re using deduction relief or foreign tax credit relief

• Gross income correctly if claiming foreign tax credit relief

• Relief is capped at the lower of foreign tax paid or UK tax due

• Direct expenses affect how much relief you can claim

Getting this right ensures you stay compliant and don’t pay more tax than necessary.

Final Tip: Review Your Records Carefully

If you’re working internationally, it’s worth reviewing:

• Contracts and gross fee amounts

• Withholding tax certificates

• Bank statements

• Expense records

Most overseas tax issues don’t arise from avoidance - they come from misunderstandings. A careful review can save time, stress, and money.