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HMRC nudge campaign – dividends and distributions

HMRC started writing to some company owners from 4 February 2024 to inform them that they may have underdeclared dividend income.

This is one of HMRC’s ‘nudge’ campaigns, which it has used more and more frequently of late, to prompt taxpayers to consider whether their returns are correct and complete. In years gone by this type of check would be in the form of an enquiry notice; however, this is a relatively new type of nudge or ‘one to many’ approach where HMRC is asking taxpayers to look again at the returns they filed.

One of the things that makes these campaigns viable is the quality and quantity of third-party information that HMRC is now able to source, including – in this case – data from Companies House. HMRC has looked at company reserves, where the accounts show these have fallen despite the company making profits, suggesting that the decrease indicates that a dividend or distribution has been paid out.

HMRC is asking the recipients of its letters to either report any undeclared dividend income or tell HMRC if there is no further income to declare.

What to do if you have dividend income to declare

If you do have dividend income to declare, HMRC has indicated that affected taxpayers 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. The same online service is used to pay anything owed, including interest and penalties.

Full disclosure of the arrears and payment of the settlement sum should be made within 90 days of receiving the PRN. By coming forward now, making a complete disclosure and gaining full ‘abatements’ for ‘telling, helping and giving’ there may be an appropriate reduction in any penalty that may be charged.

HMRC time limits

The time limits for HMRC to assess the lost tax arising from an inaccuracy in a return are:

  • Normal time limits – 4 years back from the next tax year end based on reasonable behaviour
  • Extended time limits – 6 years back from the next tax year end for careless behaviour
  • Further extended time limit – 20 years back from the next tax year end for deliberate behaviour

So, if there have been omissions from more than one tax year, it will be important to include all relevant periods in your disclosure.

If you receive one of these letters and believe that you have no additional income to declare, HMRC has provided a telephone number and e-mail address which can be used to respond.

The letter also makes clear that if the recipient does not respond, either to confirm that all income has been declared, or to make a disclosure, HMRC may open a compliance check and, if it does so, will seek to charge higher penalties if any under-declarations are later found.

Our investigations team can help if you have a disclosure to make. Penalty consideration and establishing behaviours are issues we deal with every day and we embrace the opportunity to engage with HMRC enquiry officers to secure the best deal available in your circumstances.

We are here to help – we can save you time and save you from making an excessive disclosure including too many tax years and paying higher penalties than the legislation allows, or making a disclosure which is rejected by HMRC, which might lead to more in-depth enquiries.

FEATURING: Lisa Macpherson
Lisa is the Head of Tax Technical at PKF Francis Clark, supporting the firm’s teams on tax policy and technical issues across its offices and… read more
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