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HMRC internal manual

Guidance on Real Estate Investment Trusts

Distributions: administration: gross payment

The company must pay PID gross if they reasonably believe that the person beneficiallyentitled to the payment falls within any of the categories listed in regulation 7 SI2006/2867. The default option where the company has no information about whether thebeneficial owner of a share is within one of the categories for gross payment, is to payPID under deduction of tax.

For example, where shares are held by a nominee on behalf of a registered charity, thecompany can pay gross only if it has evidence that the beneficial owner of so many of theshares held by the nominee are so held. There are no plans currently for HMRC to produceany form of official certification, but companies will be subject to audit by HMRC oftheir PID payment procedures, which will include sample checks of how they have exercisedreasonable belief.

Categories of gross recipients

These are listed in regulation 7(2) to (5) and are:

  • a UK resident company;
  • a UK branch of an overseas company that will treat the income as part of the profits of the UK permanent establishment (PE);
  • specified tax exempt bodies, such as a local authority, health service body, a registered pension scheme, or charity (for a full list see regulation 7(3);
  • a manager (or his nominee) of a PEP, ISA or Child Trust Fund and the payment is in respect of the plan investments; and
  • a partnership, each member of which is entitled to gross payment under regulation 7(2) or (3).
  • the European Investment Fund.

Reasonable belief

The ‘reasonable belief’ test enables the company to pay PID gross even when it is notin a position to know beyond doubt the status of the recipient. The payer can thereforeact on the basis of assurances given by the recipient or by an intermediary if itconsiders these assurances to be sufficient grounds for reasonable belief. For example,where a shareholder or intermediary completes a declaration that they are either thebeneficial owner of a shareholding or that they are holding the shareholding on behalf ofthe beneficial owner in a UK-REIT and they confirm that they (or the beneficial owner) areeligible for gross PID payments under regulation 7, HMRC would consider that to beevidence of ‘reasonable belief’.

Note that HMRC staff have a duty of confidentiality to taxpayers and are unlikely to beable to respond to requests for confirmation that the recipient is within one of theregulation 7 categories. Where for example, it is a question of whether the relevantdistribution will be taken into account when computing the profits of the UK PE of anon-resident company, the payer is encouraged to seek any assurance they feel they needfrom the recipient directly.

Where it is ultimately found that the recipient was not entitled to receive the paymentgross, the company should put the position right without delay (regulation 7(7) and (8)).As soon as the mistake is discovered, the company should send in an amended return, andpay over the additional tax. If the company does not do so, HMRC can make an assessment onthe company to recover the tax.

In a case where the company does not believe that the conditions specified are satisfiedbut proceeds to make the payment gross or where the belief is clearly unreasonable then apenalty under section 98 TMA may be appropriate.