Background
In the latest one-to-many letter campaign, HM Revenue and Customs (HMRC) is writing to persons with significant control (PSC) who have not filed a tax return or they suspect may not have declared all their income.
The letters invite the recipient to either report any undeclared income or else confirm to HMRC that there is no further income to declare.
Detail
HMRC has started to write to the PSC where it believes that the individual may need to take action. These type of “nudge” letters are generally sent by HMRC to individuals whom they consider may not have fully declared their income, and usually act as an informal prompt to take action if necessary. However, as seen with a similar campaign earlier in the year targeting undeclared dividend income, this time HMRC are again requesting an actual response even if it is only to confirm that there is nothing to be declared.
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.
There are two types of letter being sent out by HMRC.
The first letter will request the PSC to check their tax return for 2022/23 and to correct any errors by 23 August 2024. The letter will include guidance on how to do this. The individual is also encouraged to ensure that their tax return for 2023/24 includes all sources of income and gains. The taxpayer either discloses missing income or informs HMRC if there is no further income to declare.
The second letter is aimed at PSCs who have not submitted a tax return asking them to check if they need to register to submit a tax return. If a return should have been submitted for 2022/23 then the individual should register and submit their return by 23 August 2024. 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.
The letters also provide examples of situations in which a PSC may receive income or benefits from a company for tax purposes. These include:
- where the company pays the individual’s personal costs;
- where the individual receives a loan from a company and does not repay it; and
- where the individual uses the company’s assets free of charge.
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.
For those taxpayers who are already within self assessment it should be remembered that if payments on account are due for the 2023/24 tax year then the second payment will payable by 31 July 2024 in order to avoid any late payment interest, currently chargeable at 7.75%.
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