Tech 03/11 - Service Charge Accounts and Interest Income

I have the issue of numerous property service charge accounts now being subject to Trust Tax on interest income since applying Tech 03/11.  As service charge accounts are now separate from the limited company entity, the service charge monies are held in trust by the limited company and therefore the interest income belongs in the service charge accounts and subject to trust tax not corporation tax.  However, unlike corporation tax, HMRC does not apply a de minimis on trust tax so even small amounts of interest income are subject to trust tax and require a trust tax return to be filed.  This is administratively burdensome for both the tax payer and HMRC.  Has anyone encountered this and dealt with it more effectively?

It has been suggested to me that the interest income could be put through the limited company and net of some expenses and/or corporation tax de minimis applied, the tax could be avoided.  This seems wrong to me as the limited co is trustee and does not own the service charge monies so cannot earn interest income.  Am I not correct?

  • A good question. I hope someone can answer!
  • I hope someone from the professional bodies will advise the reporting to the HMRC the interest following the new rule re Tech03/11
  • Came across this thread accidentally and although I see it is old I thought it worthy of a reply...

    I believe your accounting is correct and the suggestion in your 2nd para is indeed wrong.

    I had been filing trust returns for the bank interest exactly as described but at one point had the need to contact HMRC about a late return and I ended up with a letter from them confirming that no further trust returns would be required providing the taxable income stayed under the trusts standard rate (20%) band (£1,000) [and no other changed circumstances]. This was back in 13/14 and with the bank interest already taxed at source at 20% that made massive sense and we stopped returns.

    I have recently contacted HMRC Trust & Estates helpline to ask the score now that the bank interest is paid gross and was pointed at their Trust and Estates Newsletter of December 2017 which reaffirmed as ongoing (for now) the fact that no returns are required providing the tax liability would be below £100. So, a deminimis there indeed is. With measly interest rates I guess this is likely to cover many or most service charge situations. The officer pointed out that this applied only to bank interest (fine). 

    This new relief originated in April 2016.

     I hope this may be of some assistance to someone.