Background
Last year as part of its one-to-many letter campaigns, HM Revenue and Customs (HMRC) wrote to persons with significant control (PSC) who had not filed a tax return or they suspected may not have declared all their income. HMRC is now again writing to individuals identified as having significant control over a company to check if they have declared all of their income and gains for 2023/24.
The letters invite the recipient to either report any undeclared income and in some cases confirm to HMRC that there is no further income to declare.
Detail
The PSC rules require certain types of entities, mainly companies, to identify all of the people who can control it, to keep a register of the PSC and to report this information to Companies House. HMRC are using this information, and are writing to the PSC, where it believes that person may not have declared all their income or may not have completed a tax return. Many individuals may still receive a letter even if they have fully declared their income or do not need to file a tax return.
Broadly a PSC is an individual or legal entity who:
- directly or indirectly owns more than 25% of the shares in a company;
- directly or indirectly holds more than 25% of the voting power of a company;
- has the right to appoint or remove the majority of directors of a company; or
- can exercise significant influence over the company.
A PSC may have taxable income and gains to declare as result of their relationship with the company. Depending on the circumstances, this could be the case where the PSC:
- has the company meet their personal costs;
- has the use of company assets;
- transfers personal assets to the company, or vice versa;
- receives loans from the company;
- takes up an option to buy shares in the company; or
- sells shares in the company.
Based on a review of the information held by Companies House, HMRC is sending out two types of letter.
The first letter will request the PSC to check their tax return for 2023/24 and to correct any errors by 25 July 2025. The letter will include guidance on how to do this. The individual is also encouraged to ensure that their tax return for 2024/25 includes all sources of income and gains. The taxpayer can disclose missing income either by submitting an amended tax return or writing to HMRC. If the individual is satisfied their self assessment return is already in order then unless stated otherwise the tax payer will not need to do anything further.
The second letter is aimed at PSCs who have not submitted a tax return for 2023/24 asking them to check if they need to register to submit a tax return. If a return should have been submitted for 2023/24 then the individual should register and submit their return by 25 July 2025. If the person fails to do this, HMRC may charge a failure to notify penalty. Where the individual believes they do not need to submit a return then they should contact HMRC using the contact details given in the letter.
The letters explain that, if HMRC discovers an error in a submitted return, or that a return should have been submitted, it may open a compliance check.
Where a return has not been submitted, HMRC have the option of raising a determination. This allows HMRC to estimate the amount of tax they believe is due and to collect that amount.
If you would like more information on the points raised above, or are concerned you may have undeclared income and how to report this to HMRC please speak to our Tax Director, Jenny Marks.
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