You probably know by now that you must hold service charge monies, and any interest accruing, by way of statutory trusts in accounts established in accordance with section 42 of the Landlord and Tenant Act 1987.
HMRC have confirmed so long as trust terms are observed, any income accrued (generated) on the service charge trust fund is subject to tax not at the special trust rates but instead at the basic rate applicable to other persons.
Before 6 April 2016, trust tax returns were not necessary as the bank interest accrued could be requested to be received net of tax. However due to a government budget announcement, after this date bank interest is received gross as standard.
For the tax year 2016/17 which runs from 6 April 2016 to 5 April 2017, HMRC does not need to be informed by trustees if all income is bank savings interest and the tax liability is less than £100.
However, if gross bank savings interest in this period is greater than £500 then HMRC need to be informed by 5 October 2017 and a trust tax return will need to be submitted as tax is payable. This is an interim measure by HMRC, so as things stand this is what is required.
Nick Basra is a Chartered Accountant at Block Accountants / w: blockaccountants.co.uk /
