De minimis rule for administration period income tax

My understanding of this rule, currently, is that you don’t have to report admin period income to HMRC if the only untaxed income is interest and the tax bill is less than £100. I have never understood why it should only apply to interest, and not dividends for example, but recently I duly reported some modest estate income to HMRC which included dividends. The tax bill was about £40, but I retained a sum to pay it.

I have now received a letter from HMRC confirming that my calculations are correct but that as the amount to pay is small, we don’t have to pay it. There is no reference in the letter to current practice, or how much tax is regarded as “small” for this purpose, but I assume it might be anything up to £100.

I just wondered whether this represents an extension of the current rule, and/or whether it is now standard HMRC practice?

Diana Smart
Gordons LLP

Quote below is from Trusts and Estates Newsletter August 2019:

" Making tax easier for trusts and estates with small amounts of savings income

In 2016 the requirement to deduct tax at source on bank, building societies and National Savings and Investments (NS&I) income was removed and income from these sources is now paid gross. As a result, trustees and personal representatives had increased reporting requirements. We introduced an interim arrangement so trustees or personal representatives do not have to submit returns, or make payments under informal arrangements, where the only source of income is savings interest and the tax liability is below £100. These arrangements have been extended to include the 2019/20 to 2020/21 tax years, and we will continue to review the situation longer term".

Malcolm Finney

But they will all soon have to register so that their intimate details can then be shared with any third party with a “legitimate interest”. I doubt an application to view the register will be permitted to be made by text message.

Jack Harper

Thank you Malcolm. I was aware of the content of the August 2019 Newsletter, but as mentioned in my original post, you will see that it refers specifically to situations where “the only source of income is savings interest”, and consequently does not apply, as I have understood it up to now, to situations where there is income from other sources, such as dividends. Perhaps I am being overly pedantic.

Misunderstood Diana.

As far as I can tell the concession is to be read literally ie informal procedure inapplicable if dividend income received. Otherwise, I would have expected a specific reference to “dividend income”.

Malcolm Finney

Thank you Malcolm, that was my understanding, and hence my surprise at being told by HMRC we don’t have to pay the tax. I assume they feel they are being helpful, but the fact is that we usually wind up and distribute the estate having retained the tax, so it is frustrating then to be left with small cash sums to be distributed, and it is also going to be annoying if we have to wait until we hear back from HMRC at the end of the administration before distributing the estate, as it generally takes them at least 6 weeks to respond.

Maybe someone from HMRC will read this and extend the allowance to dividend income…

I agree Diana, it is just ridiculous that if the estate receives say £499 bank interest and nothing else there isn’t a need to contact HMRC but if it also receives a £1 dividend, then strictly the personal representatives are required to inform HMRC albeit informally and pay the tax. I wonder how many do?

Patrick Moroney

That’s a bugbear here too! We have sent countless piddly-little sums of money over the last few years where there has been less than £500 of bank interest but just a few dividends - but I’ve yet to see one having been sent back! However, I also have not hear/read/seen that this is now standard practice although I do wish they would give us the certainty.

My understanding was also that any dividend income would require a tax return (if informal). I would guess that HMRC in their recent letter to say they would not claim this is either because:

a) they have decided “unofficially” to extend the de minimis rule (consistency not a strong point with HMRC I have found)

b) they have not noted that your return includes dividend and assumed only income from other sources (quite possible HMRC have overlooked this… ironically attention to detail not always their strong suit)

I agree it would make sense for the de minimis exception to be formally amended to include dividend income.

Perhaps STEP should step in!

Patrick Moroney

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Similarly, we have sent many sums of under £50 to HMRC for estates where a small amount of dividends has been received - but HMRC have never declined to accept the payment!