What is this about?

HMRC is reviewing company accounts filed at Companies House to find those showing significant profits but depleted retained profits, as this may indicate the payment of significant dividends to shareholders.

HMRC will be writing to the company’s shareholders, asking them to either confirm that they believe that they have declared all dividend income to which they are entitled or to disclose details of any undeclared dividends.

The deadline for responding is just 30 days from the date of the letter, so it should not be ignored, as failure to respond could lead to HMRC opening a compliance check into your tax returns and charging higher penalties.

What do I need to do?

If you receive a dividend nudge letter from HMRC, you need to check your records carefully. If you have received undeclared dividends, you will be able to declare them via an online disclosure facility. Once registered, a payment reference number (PRN) will be issued, and any tax, interest and penalties due can be settled through the facility. It is important to settle within 90 days of receiving the PRN as failure to do so will result in HMRC initiating a compliance check and imposing higher penalties on the undisclosed dividends received.

If dividends have been received but they do not exceed the dividend allowance, you may not need to declare the income, but it is important to note that the dividend allowance has reduced from £5,000 in the 2016/17 tax year to just £1,000 for the current tax year.

Summary

If you receive a dividend nudge letter, do not ignore it. Check carefully whether you have disclosed all dividends, and if you have undeclared dividend income, make sure you register with the online disclosure facility. If you have any concerns about this or any other undisclosed income, please contact us for advice on how to respond to HMRC.