HMRC have written to company owners who they believe may have omitted to declare dividend income.
Recipients are being identified by their company reserves – specifically where accounts show reserves have fallen, despite the company making profits, suggesting a dividend has been paid.
In the letter, HMRC ask the recipient to either
- Report any undeclared dividend income, or;
- Inform HMRC if there is no further income to declare.
Dividend income to declare
Any company owners that need to declare dividend income are advised to do so using HMRC’s online disclosure facility.
The online service requires a Government Gateway user ID and password in order to make a disclosure. HMRC will then write with details of a unique disclosure reference (DRN) and payment reference number (PRN), that should be used when declaring any underpaid tax.
Payments, including interest and penalties, can also be made through the online service and should be paid within 90 days of receiving the PRN.
No further income to declare
Recipients are given 30 days to notify HMRC if there is no further income to declare – this can be done using the telephone number or email provided.
Further penalties
If a company owner receives a letter from HMRC on undeclared dividend income it is important that they respond in one of the two ways outlined above. Providing no response could result in compliance checks or higher penalties being charged.
Penalties can be as high as the tax due, with added interest charged per day for late payments.
Changes to the dividend allowance
From 6 April 2024 the tax-free allowance for dividend income will reduce from £1000 to £500.
This could result in higher tax bills for company owners who receive dividends, depending on their personal circumstances and consideration. It is estimated that this change will affect 4,405,000 individuals in the tax year 2024 to 2025, with only 27% of those with taxable dividend income being unaffected by the measure. Dividend income from assets held in ISAs remains tax-free.
How M+A Partners can help
Should you have any queries regarding the declaration of dividend income, or if you have received a letter from HMRC and need assistance in responding, please get in touch with our experts or email enquiries@mapartners.co.uk.
Our experienced Tax team can provide professional advice to ensure your tax affairs are accurate and up to date.