IFM28120 - Real Estate Investment Trust : Distributions: administration: quarterly returns: mistakes : SI2006/2867

If a company/principal company becomes aware that it has omitted something from its quarterly return, included something in error, or made some other mistake in completing the return, it must deliver an amended return correcting the mistake(s) (SI 2006/2867/Reg 11). The amended return should be sent in as soon as the company becomes aware of the mistake.

The company must also make any adjustments to payments, repayments, set offs and other matters as are necessary to reflect what the position would have been if a correct return had been delivered in the first place. If a company makes a distribution as a PID, gross or under deduction of withholding tax, and subsequently discovers this is incorrect, then it is a matter to be resolved between the company and the shareholders.

For example, company C (the principal company of a Group REIT) believed shareholder A was a company that was UK resident for tax purposes, and paid a PID of 100 gross to A on 5 January 2020. However, A ceased to be UK-resident on 31 December 2019 and so was not entitled to gross payment: C became aware of this in May 2020. The return for the quarter ending 31 March 2020 showing no withholding tax payable in respect of the 100 paid to A gross was therefore incorrect. C sends in an amended return for the quarter ending 31 March 2020 on 7 June 2020, showing 80 payable to A and 20 tax due, accompanied by 20 tax. It is up to C to decide whether or how to seek reimbursement of that part of the PID (20) paid in error to A.

Where the company has paid a shareholder net when they were entitled to gross payment, the consequences depend on what the company could have reasonably believed about the shareholder. For information on the meaning of ‘reasonable belief’ see IFM28125. If the company might reasonably have known that gross payment was due (for example, a charity has sent in details of its Charity Registration Number but the information has not been acted on) then the company should make an amended return and pay over the tax deducted in error to the shareholder. How the company recovers the tax from HMRC depends on how the tax was accounted for in the original return.

If, however, the company had no reason to believe gross payment was appropriate, it is up to the shareholder to claim the tax back as part of their SA return or as a repayment claim in the normal way. If the shareholder is entitled to gross payment it is for that shareholder, or an intermediary acting on their behalf, to provide the company with assurances that can form the basis of reasonable belief.

PID paid in excess of available profits

If the company pays a distribution as a PID, gross or under deduction of tax, and later discovers that there are insufficient property rental business reserves in categories (a), (aa), (c) or (d) (brought forward and relating to the relevant accounting period) to attribute the distribution to property rental business profits or gains then the company must:

  • make an amended return to HMRC,
  • pay to the shareholders any tax deducted in error, and
  • ensure that all shareholders are made aware of the true nature of the distributions they have received and that the distribution received (which is not PID), is no longer received with tax deducted.

Shareholders who have been paid non-PID dividends as ‘PIDs’ in error should then correct any returns to HMRC to reflect the true position, including that there is no longer any requirement for deduction of tax from the dividend. This would include repaying to HMRC any withholding tax refunded under a double tax treaty reclaim.

Any amount paid as ‘PID’ which is in reality a normal company dividend, cannot be used to frank the distribution requirements of other accounting periods