HMRC are Targeting Undeclared Dividends: The latest one too many campaign

Letters from HMRC about undeclared dividend payments has been received by business owners in the last week notifying them about the potential requirement to declare their dividend income.

HMRC has reviewed submitted company accounts in order to identify any significant decreases in reverses held; this is an indication that dividends may have been distributed. HMRC can then compare these ‘distributions’ against the self-assessment records they hold for the shareholders and raise alarm bells if they do not match.

What is a ‘one to many’ campaign?

The ‘One to Many’ (‘OTM’) approach is a general term that HMRC gives to a wide reaching tactic used to provide information to taxpayers with the hope that this will influence their behaviour. The overall aim is to improve taxpayers knowledge and adherence of tax rules. In short, they are casting a wide and general net with the hope that taxpayers will hold their hands up and admit their mistakes to HMRC, saving them time in formally enquiring.

HMRC tactics include letters, emails, SMS texts, digital platforms, or media advertising campaigns. These methods allow HMRC to efficiently and effectively reach a large audience without the need for individual, one-on-one interactions, which would be impractical and costly. By employing the OTM approach, HMRC aims to prompt large groups of taxpayers to verify that their tax affairs are properly managed.

Over recent years, the deployment of the OTM strategy by HMRC has seen a significant increase, highlighting its growing importance in ensuring tax compliance and governance. This broad-based tactic serves as a gentle reminder for taxpayers to ensure their compliance with tax laws, thereby enhancing overall accountability.

For those on the receiving end of these letters regarding undeclared dividends, the message from HMRC is clear; it’s time to review and rectify any inaccuracies in your tax filings. While receiving such a letter may cause initial concern, it’s important to understand that this is not an outright accusation of tax evasion. Instead, it’s a prompt to ensure that all income has been correctly declared. For taxpayers, this means taking immediate steps to verify their tax returns and rectify any discrepancies.

One To Many and undeclared dividends

Dividends paid from UK companies do not have tax withheld at source; it is therefore the individual’s responsibility to declare all dividend income via their self-assessment tax returns to HMRC and then pay all the income tax arising.

There have been many changes to dividend tax in the last few years. Currently, individuals can receive up to £1,000 of dividend income without paying tax. However, from 6 April 2024, the tax-free dividend allowance will be reduced to £500, meaning dividend income exceeding £500 will give rise to income tax.

This reduction in the dividend tax-free allowance will lead to an increase in taxable dividend income, potentially bringing individuals who previously did not have to pay any income tax on their dividend income into the tax-paying bracket.

The tax rate for dividend income is contingent on the tax bands of other taxable income received, highlighting the importance of obtaining accurate advice to determine the applicable rates for your dividend income and ensure correct tax reporting and payment.

Dividend income earned within an ISA continues to be exempt from tax.

How the undeclared dividend campaign works:

HMRC sends letters to company owners indicating they may have undeclared dividends and the potential need to declare this income.

The letter requests owners to report dividend information and confirm if there are no undeclared dividends.

Owners have 30 days from the letters issue date to notify HMRC about any undeclared dividends or confirm if they believe their tax returns and company accounts to be correct.

If the individual needs to declare any dividend income received they can;

Go to GOV.UK and search ‘Tell HMRC about underpaid tax from previous years’ (or click here) and then follow the on-screen instructions. You should ensure you do this within 30 days of the letter’s issue date. HMRC will then write to you with a payment reference number (PRN).

Once you have received your PRN, use the same online service to declare your income and pay anything you owe, including any interest and penalties. You must do this within 90 days of receiving your PRN.

Failure to do the above may result in HMRC initiating a compliance check; which could lead to  significantly higher penalties on any undeclared dividends.

Seeking professional guidance

Tax matters can be complex, and the intricacies of dividends are no exception. Engaging a tax professional can provide clarity and direction, ensuring that your response to HMRC is accurate and comprehensive.

As HMRC intensifies its efforts to enforce dividend declaration through letter notifications and penalties for inaccurate reporting, it’s crucial to report your dividend income precisely.

At Edge Tax our expert team is here to guide and manage your filings with HMRC, relieving you of the burden and helping you avoid penalties due to incorrect submissions. Additionally, if you receive a letter from HMRC requesting dividend declarations, we are ready to offer advice and guide you through the subsequent steps.

If you have recieved a letter regarding undeclared dividends or know you need to make a disclourse for HMRC contact us today!

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HMRC’s Latest ‘nudge’ Letters on Undeclared Dividend Income 2024 are the latest line in targeted areas by HMRC.

An example of the letter sent can be found here.