With the end of the Summer break our thoughts turn now to the run into March year end. We expect that last year’s two major tax bills will be enacted any day now. There are a couple of things that you may want to keep in mind prior to 31 March.

1. Backdating credit of dividends

It will be possible to use a dividend, declared prior to year-end, to backdate and clear an overdrawn current account. That is, if a dividend is declared on 31 March 2017, it can be allocated against the shareholder current account back at 1 April 2016, meaning there is no need to pay interest on the overdrawn amount for that period, and no deemed dividend / FBT issues will arise.
RWT obligations will still be based on the date the dividend is “declared” (i.e. returned in the March 2017 period return)
In practice some taxpayers have been treating dividends in this way already, even though that is not correct under the legislation as it stands.
The expected change will be backdated, until 2008. However, in the interests of certainty, we recommend waiting for the Bill to be passed before relying on this to declare a dividend.

2. LTC eligibility requirements

These changes will take effect from 1 April 2017, meaning a company may fall out of the LTC regime with effect from that date if the new rules apply. We need to be careful about managing eligibility requirements for any companies that may be affected. In particular, we should look at any LTC where:

  • A trustee shareholder makes any distributions (including capital) to a beneficiary who is not also receiving a distribution of LTC income from that trust. This may affect the shareholder count test;
  • The LTC has more than one class of share; or
  • A trustee shareholder makes any distributions to a company beneficiary.

If any of these apply to a LTC you work with, you should discuss their position with the tax team to ensure the company does not unintentionally fall out of the LTC rules.