Trust tax underpaid

Trust tax underpaid

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I have recently been asked to deal with the tax affairs of a will trust that was wound up in December 2015.

The settlor died in 1997, the beneficiaries were six minors (now adults) and the trust had power to accumulate with discretion to distribute income or capital. The only assets have been 5 accumulation unit trust holdings and cash on deposit and no distributions were ever made until the winding up.

The previous accountant dealt with the tax returns from 1999/2000 to 2014/15 and clearly had no idea about trusts as she did not tick the "trust rate" box and also declared unit trust dividends as interest with tax deducted! Unbelievable! I only have precise data going back to 2007/08 but I calculate that tax of about £3000 has been underpaid for the years 2007/08 to 2014/15 as trust rate tax is due but was never self assessed. It looks as if another accountant dealt correctly with 1997/98 and 1998/99.

There is still cash held back from the winding up and the trustee wants all unpaid tax to be paid.

My question is how many years should I go back when sending HMRC the correct tax calculations. Could the errors be described as "careless" in which case it would seem years to 2009/10 are now out of date? Or were they "deliberate" in which case the 20 year rule would apply and all sixteen years will need to be amended?

The trustee had no idea that anything was wrong until I told her and she has been warned that interest and penalties will be payable.

Replies (3)

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By pawncob
27th Apr 2016 18:37

The Trustees signed the return. They employed an accountant tp prepare the return, so they weren't careless or deliberate. It's four years unless HMRC seek to challenge it.

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David Winch
By David Winch
27th Apr 2016 21:18

Claim
The trustees may have a claim against the previous accountant in respect of the costs of redoing the tax returns & the penalties payable to HMRC.

They should be told to get legal advice.

David

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By sirp2000
28th Apr 2016 11:09

Thank you both for your answers which are very helpful.

I agree davidwinch, but unfortunately the previous accountant is the 75 year old aunt of the trustee's brother-in-law! So I doubt that a claim will be made.

 

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