During the period when the £10,000.00 small company Corporation Tax relief was in place but non corporate distributions became taxable, we had a client that paid dividends from the previous year’s accumulated profit, having taken nothing out in the first year of trading. Approx £1600.00 tax was due on the dividends, however the amount that could be matched to profit for the year was only about half this. HMRC instructed us to roll this overpayment forward and offset against future profits which we did and put the £800.00 in the accounts as deferred tax. We duly entered the rolled forward unaccounted dividends on the special box within Tax Calc. (We use Tax Calc Pro).
We are now trying to complete the following year, when of course all profits are taxable irrespective of dividends paid, and looking to recover this amount but found the software would not allow us to do this. Upon speaking to Tax Calc it is apparent that the HMRC have instructed them to lock off this part of the software so that it cannot be used. The only thing that can be done with the previously incurred rolled forward overpaid dividend is that it be deleted!
We have extensively checked the HMRC information available to ascertain how this should be handled but have drawn a blank. This situation does not seem to have been thought about.
Has anyone been in a similar position and can advise what should be done?
Lorraine Jones
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From a practical point of view....
The legal position is clear - whilst the NCDR legislation existed the balance had to be carried forward to increase the liability in later years, now it has been abolished and there is no accounting significance to it all. In a free system simply reverse the entry. This was never more than a contingent liability as if there were no future profits to tax there was no significance to the balance so the software house should provide the facility to eliminate the effect inthe later year - of course if it can't....