R185 income reporting query on taxfiler

Covering letter from Trust does not correspond to actual treatment when completing

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Have received a R185 on behalf of my client showing £14000 in box 5 (Net amount of income taxed at dividend rate.)

In a covering letter I am informed
As you will see no Tax credit is shown on form R185 (in line with legistative changes made regarding the taxation of UK dividends) and there is no tax deduction shown either since the Trustees made no payments in respect of the 2016/17 dividends. In effect, the dividends totalling £14,000 arising in 2016/17 should be treated and taxed as if they had been received direct by my client

My problem arises when I complete the UK resident trustees section on taxfiler. On the tax calculation page it grosses the £14,000 up to £15135 and shows tax deducted by Trust of  £1,135.14 showing my client having overpaid tax of £375 ( £15135-5000 x7.5%= 760.13 less £1135.14 tax deducted by trust. This is in direct contradiction to what I have been told in the letter from the trust which would in effect give my client a £760.13 tax liability.

Any thoughts how best to proceed 

Replies (7)

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By Tim Vane
06th Jan 2018 13:00

Surely Box 5 is for dividend income that has been mandated to the beneficiaries and on which the trustees have paid tax? The trustees would have an obligation to pay tax on the dividend income if they have entered a figure in that box.

If the trustees are effectively treating the income as if from a bare trust then the dividends should be entered as normal in box 4 of the SA100 and the SA107 is not needed.

Thanks (1)
By Marion Hayes
06th Jan 2018 15:36

I need more information please. What is the nature of the trust, is all the income mandated to the beneficiary and what kind of beneficiary is your client?

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Replying to Marion Hayes:
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By bstock
06th Jan 2018 17:37

Marion Hayes wrote:

I need more information please. What is the nature of the trust, is all the income mandated to the beneficiary and what kind of beneficiary is your client?

I will try to answer your queries to the best of my limited ability:

My client inherited the trust several years ago after his niece died, the trust title includes the words Voluntary Settlement.
To the best of my knowledge the income is mandated to my client as sole beneficary

I hope these answers clarify things in some way, as you may have guessed I have no experience of Trusts

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By Marion Hayes
06th Jan 2018 22:38

From your answer it sounds like a Life Interest settlement if he inherited it from his niece, and he is obviously not a settlor.
All income mandated directly was common where all tax was credited at source and HMRC have confirmed for me that those arrangements can continue.
In these circumstances Tim is correct. Instead of creating a Trust page, create an ordinary shareholding in the Trust name and enter a dividend on 5th April of £14,000. That should get the right answer

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Replying to Marion Hayes:
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By bstock
07th Jan 2018 07:54

Many thanks to both Tim & Marion, most helpful.

Happy New Year

Brian

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Replying to bstock:
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By Mr Trellis of N Wales
07th Jan 2018 18:03

Hold on. Either the dividends passed through the hands of the trustees or they didn't. It sounds as though they did because the trustees know the sum of the dividends. If so, the trustees' statement that they didn't deduct tax is an admission of a mistake. They have made a second mistake, it seems, in not declaring the income on their tax return and have definitely made a mistake in filling out the R185 the way they have. Go back to the trustees.

For mandated income there should be no R185 (and on second thoughts perhaps the only mistake is tell you about the dividends via a form R185 rather than say in the letter).

Tim has omitted a 'not' between 'been' and 'mandated' so his post is misleading.

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Replying to Mr Trellis of N Wales:
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By bstock
08th Jan 2018 10:21

Mr Trellis of N Wales wrote:

Hold on. Either the dividends passed through the hands of the trustees or they didn't. It sounds as though they did because the trustees know the sum of the dividends. If so, the trustees' statement that they didn't deduct tax is an admission of a mistake. They have made a second mistake, it seems, in not declaring the income on their tax return and have definitely made a mistake in filling out the R185 the way they have. Go back to the trustees.

Thanks I will do.

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