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Getting imputation returns right means you have enough imputation credits on hand to refund income tax and confirm further income tax (FIT) liabilities when the imputation credit account (ICA) is in debit.

Imputation stops double taxation. If your ICA is right, then shareholders will get the right credits when they’re paid dividends. If transactions are not right in the ICA, your account may have a debit balance at year end. If you have a debit balance in your ICA, we’ll charge FIT and imputation penalty tax.

When you prepare your Imputation return – IR4J, check your records for any mistakes you may have made.

Opening or closing balance is wrong or mismatched

You should amend historic imputation returns to include any transfers that affect the closing balance because of an earlier effective date. If you do not recalculate and fix historic returns, the opening balance can be wrong or there could be an opening closing balance mismatch between years.

Not showing transfers to and from income tax

Transfers to and from other tax types and transfers between other taxpayers must show at the effective date.

Not accounting for dividends received and paid

Dividends are not always paid and received at the same time as you’re preparing the IR4J. Check for dividends as part of the imputation return process. This check can ensure the imputation credits attached to dividends received and paid show correctly in the return.

Not showing refunds of income tax

You must debit income tax refunds to the ICA at the date of the refund.

Not debiting the ICA where shareholder continuity is lost

Even small changes over time can lead to a loss of shareholder continuity. You must debit the ICA at the time shareholder continuity is lost.

Use of money interest (UOMI) and late payment and filing penalties

Paying UOMI and or penalties is not an income tax payment. These payments do not create a credit in the ICA. A UOMI refund is not an income tax refund. These refunds do not create a debit in the ICA. Make sure you consider the impact of UOMI and or penalties when you prepare the returns.

Maths or transposition errors

Even small maths mistakes or transposing figures can cause an incorrect ICA balance, FIT and imputation penalties tax.

Tax year versus Company balance date

ICA are maintained for a tax year. The tax year starts 1 April and ends 31 March, regardless of the Company balance date.

Company removed from Companies Register

You must file a final ICA return within 2 months of the company removal. The final ICA return should include a debit to reduce the closing balance to nil.

Last updated: 05 Jun 2024
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