HM Revenue & Customs (HMRC) have recently issued a new round of nudge letters aimed at persons who have significant control of a company who have either declared income of less than £100,000 or who have not submitted a tax return.
The letters invite taxpayers to consider whether there are any undeclared tax consequences of their interactions with the company of which they are a Persons of Significant Control (PSC) and to then take any appropriate action.
“Nudge” letters are generally sent by HMRC to individuals whom they consider may not have fully declared their income, and acts as a sort of informal prompt to take action if necessary. HMRC’s latest campaign is targeted at individuals who appear on the PSC register at Companies House if either:
- less than £100,000 of income was declared on their 2020/21 tax return; or
- they are not submitting self-assessment tax returns.
Before April 2016 when the PSC regime was introduced, UK companies only needed to record the immediate, legal owners of their shares and submit these details to Companies House. However, under the PSC regime, companies have to look through however many layers of ownership there are, to identify relevant persons who ultimately have significant control of the company.
Broadly, a PSC is a person 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.
Information about PSCs is available on a public register at Companies House, and therefore it is also available to HMRC view.
The letters invite taxpayers to consider whether there are any undeclared tax consequences of their interactions with the company of which they are a PSC. This includes not just the usual salary or dividends but also benefits received from the company, receipt of a share option or a disposal of shares.
Where an individual identifies additional sources of income or gains, HMRC is requesting taxpayers who have already filed a return to amend their 2020/21 tax return and to include this additional information on their 2021/22 tax return.
Taxpayers who have not filed a tax return for 2020/21 are asked to check whether they need to file a tax return using HMRC’s Check if you need to send a Self Assessment tax return questionnaire.
The deadline for amending a return for 2020/21 is 31 January 2023. However, any outstanding tax should be paid as soon as possible to avoid further late payment interest charges.
It is of course possible to be a PSC and have little to no income from the company to declare, e.g. shareholders of a company that is not trading or is making losses meaning no dividends are being paid out. The receipt of a letter does not necessarily mean an individual has done anything wrong.
If you have received a nudge letter from HMRC and have any questions or would like any assistance in determining if you should be submitting or amending a tax return, please speak to our Tax Director, Jenny Marks.
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