Background
In the latest letter campaign, HM Revenue and Customs (HMRC) have recently begun writing to company owners they suspect may have failed to declare dividend income from their company.
The letters invite the recipient to either report any undeclared dividend income or else confirm to HMRC that there is no further income to declare.
Detail
HMRC has started to write to company owners from 4 February 2024 to inform them that they may have underdeclared dividend income. 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, this time HMRC are requesting an actual response even if it is only to confirm that there is nothing to be declared.
The campaign is based around HMRC reviewing a company’s reserves as disclosed in their statutory accounts filed at Companies House. HMRC are targeting company owners where it has identified that the company’s reserves have fallen despite the company making a profit, thereby suggesting that a dividend may have been paid. The complication for HMRC will be that many company year ends will not align with the tax year for individuals and so it will be difficult for HMRC to know in which tax year a dividend may have been paid and whether that correctly agrees to any dividend income an individual may have declared. So many individuals may receive a letter even if they have fully declared their dividend income.
The letter will request the taxpayer either discloses information on dividends that have not been declared or inform HMRC if there is no further income to declare. Taxpayers will be given 30 days to notify HMRC if there is nothing to declare. If the individual believes they have no additional income to declare, they can advise HMRC of this via the telephone number stated in the letter or e-mail address provided.
If the recipient does have dividend income to declare, HMRC advises they should use an online disclosure facility. The online service requires the user to register for the facility. They will then be sent a payment reference number (PRN) in the post.. Payment should be made within 90 days of receiving the PRN. Penalties charged can be as much as the same amount of tax due if wrong amounts have been submitted, plus interest charged per day for any late payments. The same online service is used to pay anything owed, including interest and penalties.
There is a 90-day deadline after receipt of the PRN for the taxpayer to make their disclosure. If this deadline is not met HMRC may open a compliance check and charge higher penalties if undeclared dividend payments are found.
The dividend allowance was halved with effect from 6 April 2023 from £2,000 to £1,000. It is due to fall again from 6 April 2024 to £500. Therefore it is likely more individuals will need to report dividend income going forward via a self assessment tax return.
If you would like more information on the points raised above, or are concerned you may have undeclared dividend income and how to report them to HMRC please speak to out Tax Director, Jenny Marks.
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