Reporting on Dividend Payments and Deducting Tax for Non-residents

Following negotiations with HMRC it was agreed that although the Tax Act 2007 indicates an amount of £15, credit unions should only report on payments over £250. If there are no payments over this amount, you are not required to submit a return.

This guidance is subject to change and is conditional of any alternative request received from HMRC.

HMRC enforce the dividend reporting requirement centrally and follow up with credit unions to ensure that they complete the reporting and annual returns required of them. This is a legal requirement and ultimately non-compliance could result in penalties.

Putting it into practice

Under Section 887 of the Income Tax Act 2007 (ITA 2007), deposit-takers are required to provide specific details of members who received dividend payments, across all their savings accounts excluding ISA accounts, of more than £15 in the previous year.

However, following negotiations with HMRC they have agreed that credit unions should only report on dividend payments over £250.

Those who also offer ISA accounts to their members should make the separate Return of Information, required for the tax year separately. ISA accounts should not be included in your dividend return under Section 887.

This information must be supplied to HMRC within three months of the end of your accounting period (for most credit unions this is 30 September which would mean a reporting deadline of 31st December). This report must exclude members who received more than £250 but do not live in the UK.

Nil Returns

Nil returns are not required. HMRC are happy to receive them and will update their records on receipt, but the legislation does not require this.

What about the personal savings allowance?

The personal savings allowance is a tax relief on savings for up to £1000 for basic rate taxpayers and £500 for higher rate tax payers. Below this amount individuals do not need to declare any tax.

However, credit unions still need to complete the dividend return for amounts £250 as this amount may take them over the personal savings allowance in aggregate with account interest and dividends accrued elsewhere.

For more information about tax relief on savings, please see the HMRC’s guidance on the .Gov website.

Completing your return

You will need to complete a Excel format spreadsheet for the information requirements which are as follows (see specification document):

• Members Name
• Address
• Postcode
• Total amount paid
• Currency Code (GBP)
• Period end
• Payment Description – “Credit Union Interest or Dividend”*
• Credit Union Name
• Payee Ref (Member Number)

* Simply enter the words “credit union interest or dividend” for every entry in this column. The spreadsheet itself contains detailed guidance on how to complete the return on a separate tab of the file.

You will be able to submit your return by:

• Sending your return by email to: tpi.b@hmrc.gsi.gov.uk.

Full guidance will be included with your letter that you receive annually but can also be accessed here: https://www.gov.uk/government/publications/notes-for-submitting-a-return-under-section-887-of-the-income-tax-act-2007-on-a-spreadsheet

What are the issues for credit unions?

You will need to be able to interrogate your members accounts, identify any dividends paid during the accounting period, add together all the dividends paid across the different savings accounts (excluding ISAs) held with the credit union and, if this comes to £250 and over, paste the data required into the excel spreadsheet report provided by HMRC. This applies to all members unless they are a non UK resident member (non-resident).

Many of the systems used by credit unions should be able to produce this data by way of reports but you should speak to your software provider if you are unsure. ABCUL has advised HMRC of the main software providers in the sector but it is sensible for you to follow up on this with them directly to ensure that they will have a system in place to comply.

Some credit unions already advise members that they should declare dividend payments over the personal savings allowance to HMRC but it might be sensible to remind members before you send in your return. If they do not declare their total dividend / interest income above £1000 (or £500 for higher-rate tax payers) they are breaking the law – although the credit union has no liability for a member’s uncompleted tax return.

Return of Income Tax on yearly dividend payments to members non resident in the UK

Under section 874 ITA 2007, there is an obligation on credit unions to deduct tax at the basic rate (currently 20%) on any interest payments made to members living outside of the UK (non-resident).

By virtue of S874 (5) ITA 2007, credit union dividends are to be treated as interest for the purposes of tax. This means that dividend payments made to a person whose usual place of abode is outside the United Kingdom, should have income tax deducted and be paid net.

This requirement has been in force for some time, but we are not aware of HMRC following up on this with any credit unions in the past.

If you find that any of your members are not resident in the UK, please also see our guidance on International Tax Regulations.

What does this mean to your credit union?

You will need to put a process in place to identify any non-resident members. In many credit unions they will be marked as ‘non qualifying’ members and you should be able identify them quickly by running a list of non qualifying members and identifying the non UK residence by their address.

At the time of crediting any dividend to a member’s account where the member is non UK resident you should credit the gross payment and the immediately deduct 20% to cover the tax liability. This will give an audit trail both for the credit union and the member (if possible notate the deduction as UK Tax on the members account, this will ensure that the member understands the transaction when they receive their statement). At the end of the financial year, you will need to advise HMRC using a form CT61 which you can request online.

You may be required to issue a tax certificate to any member who requests one for their tax records (they may, for example, be entitled to keep the gross dividend income due to their overall tax status but will need to prove to HMRC that tax has been mistakenly taken from them to ensure reimbursement). Other than to issue the certificate, you have no liability where excess tax has been charged and the member is required to take this up with HMRC directly.

ABCUL – Last Updated: 17/10/2019

Download a letter from HMRC on dividend reporting on the ABCUL Member Resource Library here.