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Correspondence on the completion of forms R185, residential property gains and natural capital accounting.
Perplexing form R185
I refer to the query on the correct completion of forms R185 (‘Certificate of tax deduction’, Taxation, 10 December 2020, page 25). For a client’s 2017-18 and 2018-19 tax returns I had ‘interesting’ discussions with a firm of solicitors who sent me what I considered to be incorrect forms R185 with exactly the sort of issues that Perplexed reported. To make matters worse, the solicitors also included the full amount of foreign tax deducted, even when it was more than that allowed under the relevant tax treaty. For example, dividends from Switzerland which normally have 35% tax deducted instead of the 15% allowed. Initially, I assumed that this was simply a misunderstanding (for 2017-18), pointed out the error and corrected the figures on my client’s tax return.
When they did the same thing again for 2018-19 things became very tricky because they insisted they were correct and I was wrong. I concluded they were using a tax return preparation programme which gave the wrong figures and, because they did not complete the beneficiary’s own tax return, did not appreciate the implications of including foreign tax suffered in the UK tax paid box.
My suggestion that I should complete the tax returns for the trust as a subcontractor (I act for many trusts as well as private individuals) was greeted with horror rather than gratitude that I was trying to help them avoid a negligence claim – how naïve could I be?
I have an Excel spreadsheet that allows me to calculate the allowable foreign tax for a trust and how much should be included on a form R185. The most cost effective way for my client is to ignore the foreign income on the R185 supplied and calculate the correct amounts. At least the solicitors are prepared to give me the stockbroker’s tax reports for the trust so that I am able to do this.
Tomazaan.
Residential property gains
Further to the article on capital gains reporting (‘Remember the deadline’, Taxation, 3 December 2020, page 12), it was not noted that estates cannot use the online systems to report gains. I went through the whole online process with my accountant in October after selling my late mother’s house and at the end HMRC’s system would not accept the report. My accountant was advised by HMRC that a paper report was required for estates. I saw nothing on HMRC’s website to indicate that this was the case.
Taxation reader.
Taxation impact of natural capital
Natural capital accounting is the process of the calculation of the stocks and flows of natural resources in a given eco system or region. How natural capital is accounted for in the context of a farming business is something that must be considered as the Agriculture Bill 2019-2021 goes through parliament.
Direct area subsidy payments are being replaced by the environmental land management scheme (ELMS) from the Department for Environment, Food and Rural Affair and these will need fresh accounts and tax consideration.
A big question will be into which accounting period do the income and expenses fall? Other points to consider are whether the expenditure to produce the income is capital or revenue – see the recent case of Steadfast Manufacturing & Storage Limited (TC7770) to see how marginal the decision will be (tinyurl.com/y2gkxy8p).
However, with an ageing population of farmers, big questions have to be raised over the impact on capital gains tax and inheritance tax reliefs. Will the land still qualify for agricultural property relief – is it still agriculture – and business property relief – is it a trade? Quite a significant question for very elderly farmers, indeed all farmers and landowners looking for capital taxes protection. It is accepted that this practical point raises more questions than answers, but they are all factors that must be considered by tax advisers.
Julie Butler FCA, Butler & Co.
