The tax office is writing to persons with significant control registered at Companies House who declared income of less than £100,000 on their last tax return, or who haven’t submitted a tax return.
Who is a person with significant control (PSC)?
A PSC is broadly a person who:
directly or indirectly owns more than 25% of the shares in a company
directly or indirectly holds more than 25% of the voting power of a company
has the right to appoint or remove the majority of the directors of a company,
can exercise significant influence over the company.
Much of the information about the PSC is available on a public register at Companies House.
This is a continuation of HMRC’s educational programme to help individuals understand their obligations as persons with significant control (PSCs), which commenced in November 2022. In the first phase, HMRC sent one of two nudge letters to over 2,300 PSCs.
In this phase, the HMRC Wealthy Team is sending a total of 1,790 nudge letters targeted to the following groups of PSCs:
Those who declared income under £100,000 in their most recent return.
Those who haven’t submitted a self assessment tax return.
An HMRC spokesperson said: “This is routine activity – each year we send out thousands of reminder letters on various areas of tax.”
HMRC was recently asked how the £100,000 threshold was set, as this is around three times the average household income in the UK. According to the Office for National Statistics in 2019/20 only 8% of UK households had an annual income of over £100,000 although this doubles to 16% of households in London.
HMRC explained that it has targeted the letters to taxpayers who have reported a “lower than expected level of income on their tax return compared to most people in a similar position”, but it wouldn’t disclose how it chose the comparison population.
It is suggested that most small company directors would seek to keep their total income below £100,000 to avoid losing any of their personal allowance. Any surplus income would be invested by the company in the individual’s pension scheme or retained in the company.
Check and correct return
This nudge letter asks the taxpayer to check their 2021/22 tax return for any benefits or gains which should have been declared, such as:
Use of business assets
Transfer of business assets to or from the company
Loans from the company
Disposal of shares in the company
If a correction to the tax return is required, HMRC has asked that this be done by 18 August 2023, although the taxpayer technically has until 31 January 2024 to amend their 2021/22 tax return.
HMRC says the letters do not suggest the taxpayer has done anything wrong; they are educational and act as reminders to make sure the taxpayer is certain they’ve completed their tax return correctly. However, the text of the letter includes this statement:
“We may find errors that you should have corrected after receiving this letter but didn’t. If so, we may open a compliance check and investigate. This may mean that you have more tax to pay. We may also charge you a penalty.”
Is a tax return needed?
The other group of PSCs who will receive this nudge letter in phase 2 of the educational programme are those who have not submitted a self assessment tax return to HMRC.
These individuals are encouraged to use this tool: “Check if you need to send a self assessment tax return” on gov.uk to help them decide if they need to register for self assessment and submit a return for 2021/22.
For many years, HMRC’s practice had been to ask all company directors to submit SA tax returns, even if the individual received only a modest salary and a small level of dividends.
The new version of the online checking tool for tax returns doesn’t trigger the individual to submit a return just because they are a director of their company. But the taxpayer is asked to complete a return if their dividend income is more than £10,000.
This nudge letter asks the taxpayer to register for self assessment and submit their tax return for 2021/22 by 18 August 2023, or to email email@example.com or call: 03000 520 503, if they don’t think they need to submit a return.
HMRC says this is only an educational letter, but it does contain this warning:
“We may find that you should have registered for self assessment after you received this letter but didn’t submit a tax return. If so, we may:
• open a compliance check to investigate
• raise a determination (this is an estimate of the tax we believe you owe, and it allows us to legally collect this amount)
This may mean you will have more tax to pay.
Where the taxpayer has authorised a tax agent to act for them, that agent should also receive a copy of this nudge letter.
At JMS Accounting, we encourage all our clients to submit a Self Assessment return to ensure they keep on top of the tax obligations, if we are not doing that for them. Get in touch in you need help with Self Assessment