HMRC letters to company directors on undeclared dividend income

By Graham | February 7, 2024

Table of Contents

HMRC is contacting Company directors suspected of receiving dividends without declaring the income on their Self-Assessment Tax Returns

Business owners have been receiving letters from HMRC as part of a recent campaign. These letters notify them about the potential requirement to declare dividend income.

HMRC has been conducting investigations on company reserves, specifically targeting those companies that have recorded profits but have depleted their accounts reserves. This investigation suggests the possibility of a dividend payment. Owners are being given the choice to disclose any undeclared dividends or to inform HMRC if they believe there are no dividends to be declared.

Impact of the reduced Dividend Allowance

The reduction of the dividends allowance to £500 from April 2024 will impact approximately 3,250,000 individuals in 2023, which is expected to rise to 4,405,000 for the tax year 2024-25. This measure is projected to generate £450m in revenue for 2024-25, increasing to £810m in 2025-26.

Responding to the HMRC letter

Taxpayers will have a 30-day window to inform HMRC if there are no dividends to be declared. It is important to note that penalties can amount to the same value as the tax owed if incorrect amounts have been submitted, in addition to daily interest charges for late payments.

Taxpayers can use an online disclosure facility to register any outstanding amounts owed. However, completion of the registration process is a prerequisite. Furthermore, once a payment reference number (PRN) is received, interest and penalties can be settled through the aforementioned service. It is crucial to meet the 90-day deadline following PRN receipt, as failure to do so may result in HMRC initiating a compliance check and imposing higher penalties for undisclosed dividend payments.

Dividend allowance

At present, a tax-free threshold of £1,000 applies to dividends. This threshold will be reduced to £500 from April 2024, whereas in April 2023, it was already halved from £2,000. The Treasury has stated that this policy aligns with the government’s objective of ensuring the sustainability of public finances.

It is important to note that dividend income from assets held in ISAs will remain entirely tax-free.