GREIT08125 - Distributions: administration: gross payment

The company must pay PID gross if they reasonably believe that the person beneficially entitled to the payment falls within any of the categories listed in regulation 7 SI 2006/2867. The default option where the company has no information about whether the beneficial owner of a share is within one of the categories for gross payment, is to pay PID under deduction of tax.

For example, where shares are held by a nominee on behalf of a registered charity, the company can pay gross only if it has evidence that the beneficial owner of so many of the shares held by the nominee are so held. There are no plans currently for HMRC to produce any form of official certification, but companies will be subject to audit by HMRC of their PID payment procedures, which will include sample checks of how they have exercised reasonable 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 not in a position to know beyond doubt the status of the recipient. The payer can therefore act on the basis of assurances given by the recipient or by an intermediary if it considers these assurances to be sufficient grounds for reasonable belief. For example, where a shareholder or intermediary completes a declaration that they are either the beneficial owner of a shareholding or that they are holding the shareholding on behalf of the beneficial owner in a UK-REIT and they confirm that they (or the beneficial owner) are eligible for gross PID payments under regulation 7, HMRC would consider that to be evidence of ‘reasonable belief’.

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

Where it is ultimately found that the recipient was not entitled to receive the payment gross, 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, and pay over the additional tax. If the company does not do so, HMRC can make an assessment on the company to recover the tax.

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