HMRC Focuses on Undeclared Dividends

The UK’s tax authority, HM Revenue & Customs(HMRC), is actively addressing cases where company directors may have received dividends without properly declaring their taxable income. In a recent letter campaign, HMRC has been reaching out to company owners, emphasizing the need to report dividend income.

The investigation focuses on company reserves, identifying businesses that have recorded profits, but have simultaneously depleted their reserves, hinting at potential dividend distributions. Company owners now face a choice: either disclose any previously undeclared dividends or inform HMRC if no further income needs to be declared.

Company directors should pay attention to the following very important points:

1.   Dividend Allowance Reduction: Starting from April 2024, the dividends allowance will be reduced to £500. This change will impact approximately 3,250,000 people for 2023 tax year, rising to 4,405,000 for 2024-25. The expected revenue from this reduction is £450 million in 2024-25, increasing to £810 million in2025-26.

2.   Reporting Obligations: Taxpayers have a 30-day window to notify HMRC if they have no dividend income to declare. Failure to comply may result in penalties.

3.   Penalties and Compliance: Penalties for incorrect submissions can be substantial, equivalent to the tax owed. Additionally, interest accrues daily for late payments. Companies can use an online disclosure facility to register outstanding amounts, with payment reference numbers (PRNs) issued by post.

4.   Policy Objective: The Treasury justifies these changes as part of its commitment to maintaining sustainable public finances.

5.   ISA Exception: Dividend income from assets held in Individual Savings Accounts (ISAs) remains entirely tax-free.

HMRC estimates that implementing these dividend rule adjustments will cost £700,000.

Feel free to reach out to our team if you need any assistance with this compliance requirement.