As we explained in our newsletter on 6 July 2017 there are currently 62 circumstances in which the SA return for 2016/17 should not be filed online, as to do so would generate an incorrect tax computation. The ICAEW has uncovered another situation which will affect many discretionary trusts, and there may be more circumstances yet to surface.
All trusts which operate a tax pool – which includes all discretionary trusts – need to account for tax credits attached to income the trust receives. Before 6 April 2016 the notional 10% dividend tax credit was not added to the tax pool, as it could not be reclaimed. From 6 April 2016, the 7.5% dividend tax is added to the tax pool where that tax has been paid by the trust, as this tax can be reclaimed.
The tax pool calculation attached to the 2016/17 trust tax return doesn’t allow the 7.5% dividend tax to be added to the tax pool. This understates the tax available to cover distributions from the trust. Trustees will have to calculate the tax pool manually to arrive at the correct tax charge for the year, with regard to the distributions made. The trust tax return will also have to be submitted in paper form.
If you have a new trust to register with HMRC, remember that the form 41G(Trusts) was withdrawn in May. You must now register the trust with HMRC using the new online Trusts registration service. If you have a complex estate of a deceased person which is likely to have an income tax or CGT liability to pay, that should also be registered with HMRC using the Estates online service.