Interim dividends taxed when paid

In Peter Gould v HMRC [2022] TC08647, the First Tier Tribunal (FTT) found an interim dividend paid to two shareholders on different dates was taxable on the dates of payment not the earlier date of declaration. The result was that the dividend was taxed in different tax years for each shareholder.

• The board of directors of Regis Group (Holdings) Limited resolved to pay an interim Dividend of £40m to its two shareholders.
• £20m was paid to one shareholder on 5 April 2016 and £20m to the Appellant on 16 December 2016.
• The Appellant claimed the dividend was taxable when paid, in the 2016/17 tax year. He was Non-UK Resident in the year and it would not, therefore, be subject to UK tax.
• While not relevant to the case, the other shareholder declared the dividend in the 2015/16 tax year when paid to avoid the increased dividend tax rate in 2016/17.
• HMRC opened enquiries into the Appellant’s 2015/16 and 2016/17 tax returns and issued closure notices on the basis that the dividend should have been taxed in the UK in 2015/16.
• The closure notices were Appealed to the FTT.

The FTT found:

• Dividends are subject to tax when they become due and payable.
• It was common ground that an interim dividend is not normally regarded as taxable until it is paid.
• HMRC’s argument that the Appellant could enforce payment of the dividend on the date it was paid to the other shareholder was dismissed as:
  • While shareholders of the same class must be treated equally, the company documents and the way in which the dividend was declared did not mean the dividends were due and payable on the same date.
• The Appellant would not have been successful in petitioning the court to enforce the payment of the dividend from the date of payment to the other shareholder and no debt was created by the declaration of the dividend as:
  • The court would have considered the Appellant’s agreement to deferral of the payment, under professional advice, as removing any claim to the court for unfair prejudice.
  • Any remedy would have been at the court’s discretion and the FTT was unable to have confidence in the court ordering payment of the dividend, and less still that it was due and payable on 5 April 2016.

The appeal was allowed.

UPDATE: HMRC have appealed this case to the Upper Tribunal. The hearing is awaited. 

Useful guides on this topic

SRT: Statutory Residence Test
What is the statutory residency test? Why is it important and how does it work?

SRT: Statutory Residence Test Toolkit
This is a freeview interactive tool to determine 'At a glance' whether you are UK resident or not in a tax year for 2013-14 onwards.

Dividend Tax
How do you tax dividend income? What is the dividend allowance? What are the dividend tax rates?

External links

Peter Gould v HMRC[2022] TC08647