Standard rate band

[mike_c]

I believe a £500 standard rate band has been introduced for 2005/6 available to A&M Trusts subject to Trust Tax rates, but I can't see how it is included in the return or calculation examples. How do I get the benefit of it?

[MH]

I have been struggling with this. If I make a payment from the income of the A&M trust I manage, I am supposed to provide an R185 form on which I declare that I have deducted tax 'at the rate applicable to trusts', which is still 40%. However, that will invariably lead to an overpayment, the extent of which I cannot know till the tax year ends. The taxman will then claw back the excess and the Trust will have paid 40% after all... I can't see a way out of this conundrum!

[MH]

Having now struggled to the end of the tax calculation I see what is happening. All disbursements of income have to come with an R185 declaring that tax has been deducted at 40%. Of course the actual tax due on the first £500 is now only 20%. Therefore the beneficiaries will inevitably have been credited with receiving more in (potentially refundable) tax credit than has actually been paid. The tax return made for the trust will identify this -- it claws back the extra money notionally disbursed (boxes T8.22 and T8.23 on the 2005-06 Trust Tax Calculation Guide, form SA951)

So if you disburse all the income from a trust you will have to pay to the taxman the equivalent of a 40% tax rate for the whole of the income. Only if you leave income undistributed will there be any effective 20% tax band.

Seems pretty pointless to me...