Non-resident trust error leaves some out of pocket

Non-resident trustees may have potentially overpaid tax for 2016/17 because HMRC didn’t take into account the 7.5% dividend tax credits they are entitled to, BTCSoftware has warned.

From April 2016, non-resident trustees are entitled to a 7.5% dividend tax credit under section 399 ITTOIA on any dividends included in their taxable income. However, as BTCSoftware reported, HMRC did not apply this for the 2016/17 tax year.

BTCSoftware reported the error to HMRC in May 2018, but while HMRC has resolved the issue for the 2017/18 trust tax calculation it has no plans to issue a “blanket communication” about the 2016/17 error.  

BTCSoftware’s CEO Rob Ellis told AccountingWEB that they became aware of the error after a customer who specialises in non-resident trusts contacted them. The customer had noticed an anomaly on the tax calculation document based on HMRC’s calculations.

After repeated requests, HMRC acknowledged that trustees are entitled to the 7.5% tax credit under the legislation that is included in their taxable income. But the BTCSoftware customer questioned further: “That legislation hasn’t changed since 2016. So why didn’t we get a tax credit last year?” recounted Ellis.  

“We looked at our code to make sure it’s working the same as HMRC specified,” said Ellis. “We were working as per HMRC’s specification for both 2016/17 and 2017/18 but it was odd that the tax credit was only given for the 2018 tax year.”

BTCSoftware went back to HMRC again, and it agreed that it was wrong for last year.

HMRC has confirmed that it is now aware of the 2016/17 trust issue. “We are working hard to identify those customers that are not aware they are affected or have yet to contact us and will take appropriate remedial action. At this stage, we have no plans to issue a blanket communication to customers,” an HMRC official told BTCSoftware.

This error harkens back to a similar unanticipated HMRC exclusion that BTCSoftware unearthed during the January rush.

Five exclusions in the 2016-17 self-assessment season came to light, but although HMRC programmers were aware of the issue, the then-looming January 31st deadline meant that they did not have enough time to fix them.

“Last year was the year of the exclusions; it was a complete nightmare,” continued Ellis. “HMRC for the first time I can remember reissued the tax computation for individual taxpayers mid-year.”

Ellis, however, feels it is important that taxpayers who may be affected by this are made aware.

“Whilst trust tax returns form a small percentage of the self-assessment regime, we still believe that they should know if they have overpaid tax, otherwise it goes against HMRC’s promise to collect the “right amount of tax”.


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