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New HMRC campaign targets undeclared dividend payments

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HMRC has launched a new campaign targeting company directors who are suspected of earning dividends without declaring their taxable income.

The campaign comes following an HMRC investigation into company reserves, where they have been identifying companies that have made a profit but have depleted reserves, which alludes to a dividend payment.

In its letter, owners are being given the option to disclose information on any dividends that have not been declared, or to inform HMRC if they believe there is nothing more to declare.

Dividends allowance

This campaign follows the move in April 2023 by HMRC to halve the dividends allowance from £2,000. Current rules allow for £1,000 to be earned in dividends tax-free. However, this will be cut further in April, to £500.

These changes are understood to have affected 3.25m people in 2023, with the number impacted set to increase to 4.4m people in the 2024-25 tax year.

The change is expected to raise £450m in 2024-25 before jumping to £810m in 2025-26, and is described by HM Treasury as supporting “the government’s objective of putting the public finances on a sustainable path”.

Kirsty Swinburn, Personal Tax Senior Manager at BHP, said: “HMRC has made a further move against what it suspects is a relatively widescale under-declaration of dividends by the shareholders in owner-managed businesses.

“Following on from the draft legislation in the summer, which looked to impose much more detailed dividend reporting requirements on tax returns from 2025/26 onwards, HMRC has now launched a campaign targeting historic undeclared dividends.

“It is now even more important than ever that dividends are declared and documented correctly, as they come under ever closer scrutiny from HMRC.”

90-day deadline

According to the letter received by company owners, taxpayers will be given 30 days to notify HMRC if there is nothing to declare. But companies who need to register anything owed face a 90-day deadline for any payments, after receiving a payment reference number (PRN).

To find out more or discuss your individual tax needs please contact Kirsty or a member of BHP’s Tax team on 0333 123 7171.