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blue door with letterbox | accountingweb | OTM to company owners re unreported dividends

HMRC gets on the case of unreported dividends


HMRC has written to owners of companies where distributable reserves have fallen despite profits made, suggesting dividends have been paid out but not disclosed.

20th Feb 2024
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HMRC has launched a new one-to-many (OTM) letter campaign where it believes company owners may not have reported all of their dividend income.

The commonly understood formula for calculating retained earnings, or the profit-and-loss reserve, is:

opening retained earnings +/- profit or loss for the year – dividends = closing retained earnings

Occasionally other transactions can cause retained earnings to fall, for example a bonus issue of shares where the share premium account is too low, does not exist or the directors have decided to make the issue from retained earnings for some other reason. 

However, by and large a significant drop in retained earnings indicates that a distribution has been made to the shareholders, which generally takes the form of dividends. 

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Replies (28)

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By Justin Bryant
20th Feb 2024 11:33

In case anyone is wondering, this is easily picked up by HMRC's Connect computer.

Thanks (2)
Replying to Justin Bryant:
By rmillaree
21st Feb 2024 09:51

its not exactly rocket science is it - one spreadsheet would probably sort the entite thing cross checking etc. Whats crazy is that presumably before now hmrc have probably relied on honesty of peeps to go out of their way ot register and flag up the fact that they owe tax - or simply picked up on stuff when random or other checks have been done which is likely to be very small % of the time.

Being frank - i dont know why hmc dont question EVERY uk resident every year (not within sa) - simple online system similar to "do i need to do a tax return" questions - complete within 30 days of the end of the tax year job done with pointers (simple registration) of what needs to be done if tax is owed.

so often i suspect the lack of reporting is due peeps never quite get round to the hassle of dealing with hmrc - i know thats no excuse but the reality is many peeps have transaient income where they perhaps only fall within thne reportig regime for small period of time or amounts start out very minor.

IMHO questionaaire would probably cut non reporting by 50% plus in a heartbeat at the more lazy end of the sacle. At the more deliberate end of the scale it would at least make peeps think i cant do nowt then blame ignorance later.

Thanks (2)
By SteveHa
20th Feb 2024 12:35

If the letter is not responded to within the 30-day window, HMRC warns that it may open a compliance check into the individual’s tax affairs

Good, let them do that, then, and waste their own time as well as everyone else's.

Thanks (6)
Replying to SteveHa:
By Deez Nuts
20th Feb 2024 15:56

This is exactly the sort of bread and butter compliance work HMRC should be pursuing no?

I'm sure we've all seen examples of poor DIY jobs or disconnects between accounting and tax teams for the represented tax payer.

Thanks (7)
By FactChecker
20th Feb 2024 22:00

I've no problem with the avowed intention (assuming that the unknown risk-profiling methods and methodology for choosing potential recipients of OTM letters are more considered/robust than much of what emanates from HMRC right now) ... BUT:

* "If the letter is not responded to within the 30-day window, HMRC warns that it may open a compliance check into the individual’s tax affairs."
- given the state of postal deliveries (2 or 3 times per week in central London and often over a week after postmarked 1st-class), from when does the clock start ticking?
- given the lack of acknowledgement of receipt often provided by HMRC (whether electronically or by letter), how is one supposed to know whether you've responded 'within the window'?

AND on what basis is the fairness and respect supposedly enshrined in their Charter evidenced by them giving such short notice despite all *their* communications taking weeks, months or more than a year to pop out of the woodwork?

I'm inclined to agree with SteveHa ... if only on the basis that if no-one responds then HMRC simply don't have the resources to follow-up on their threat.

Thanks (11)
Replying to FactChecker:
By petestar1969
21st Feb 2024 09:47

Hmm, and what date will be on the letters? An actual date or just the month and year, like most of the letters HMRC send out en masse?

Thanks (0)
By listerramjet
21st Feb 2024 09:41

Businesses don’t normally threaten “customers” with financial penalties. Government agencies regularly do. Ho hum!

Thanks (2)
Replying to listerramjet:
By James Aughterson
21st Feb 2024 10:30

You don't have clients supplying UK supermarkets?

Thanks (4)
Should Be Working ... not playing with the car
By should_be_working
21st Feb 2024 09:43

This should be a stupid question, but these days I'm not so sure...

Will agents be copied in on these letters?

Thanks (5)
Replying to should_be_working:
By Ian McTernan CTA
21st Feb 2024 10:18

Probably 50% of the time judging from previous experience...

Thanks (0)
By Eric T
21st Feb 2024 09:47

If only the Full Accounts actually had a displayed "Dividend" line in the Summary Profit and Loss Account.

The revised format for small companies does not show the actual dividends declared in the accounts.

I think it was a rather silly change to statutory accounts.

Thanks (17)
By pjd17mini
21st Feb 2024 09:48

Wonder how the computer will cope when the company year end is something other than 31st March..

Thanks (9)
Replying to pjd17mini:
By Wanderer
21st Feb 2024 18:09

Once had a very excited HMRC officer launch an enquiry into directors' / shareholders' personal tax. Straight in with threats of interest penalties, willful omissions, what a major crime had been committed etc. etc. .............................. until I pointed out that 31 March isn't the same as 5 April!

Thanks (2)
By jon_griffey
21st Feb 2024 10:13

I have often thought that there must be massive tax leakage here. It seems to me very simple to add an extra page on the CT600 to list out what dividends were paid to whom during the accounting period - even including NINO or UTR, which could then find its way onto the individual's personal tax record.

Thanks (4)
Replying to jon_griffey:
By Ian McTernan CTA
21st Feb 2024 10:22

That would entail a huge rewrite of the entire HMRC system: at the moment it's all separate pieces that generally don't talk to each other, and use different reference numbers for all sorts of things.

I'd love to see a joined up system using one reference number per entity with a letter after that number denoting the applicable tax type, and one central account for each entity (ie, CT, VAT, PAYE etc on one account with subsections, payments to be transferred between them, etc).

Perhaps if they concentrated on making the systems fit for purpose instead of trying to spend billions on MTD for IT...

Thanks (9)
Replying to Ian McTernan CTA:
By rmillaree
21st Feb 2024 10:46

That would entail a huge rewrite of the entire HMRC system:

well thats certainly NOT the case with hmrc getting the info at their end - its easy enough to attach pdf with info under current system.

i would concede what they do with info is another matter. Presumably though this is hopefully where AI can kick in and that AI should be able to do the grunt work of cross checks to flag up items for manual review - cant imagine thats anything other than easy if hmrc are presented with pdf containing details. I would agree formal cross checked totals like paye rti would probably be better

Thanks (0)
By RogerMT
21st Feb 2024 10:43

"However, HMRC still requires individuals in this position to confirm this by emailing or calling HMRC’s Individuals and Small-Business Compliance Directorate."
Emailing?! Crikey! At last! :)

Thanks (0)
By AndrewV12
21st Feb 2024 11:00

'HMRC has written to owners of companies where distributable reserves have fallen despite profits made, suggesting dividends have been paid out but not disclosed.'

Mmmmmm HMRC are finally getting on the ball.

Thanks (2)
By ireallyshouldknowthisbut
21st Feb 2024 11:01

This has memories of when HMRC used to cross check VAT return to turnover stated in accounts and forget that the accounting periods vary.

Hopefully they run it over 3-4 years or something so they can spot anyone having them on.

Thanks (1)
By lesley.barnes
21st Feb 2024 11:16

All well and good chasing the business owners and checking their SA returns but should they not be asking all the shareholders in a business?

Thanks (0)
By norstar
21st Feb 2024 11:18

Won't work for non-coterminous year ends nor for taxpayers with other share income.

Say my accounts to 30/4/23 show a big drop in reserves but no dividends on the 5/4/23 tax return because they were paid out 30/4. The 5/4/24 tax return isn't due until 31/1/2025 by which time they're well after the normal enquiry window. Presumably their system will look for an entry in the dividend box, but if you've got dividends from other sources, box ticked?

Thanks (0)
Replying to norstar:
By rmillaree
21st Feb 2024 11:31

"Won't work for non-coterminous year ends nor for taxpayers with other share income."

Nonsense imho - you can do a quick reality check to ensure that the sum of the parts isnt obviously wrong later once you have data.

IMHO is clear to hmrc have the ability to ask after normal enquiry window end if its clear dividends have been included on neither tax year.

They should deffo have ability to even start routine enquiry in later year and presumably work backwards from there.

i supect if peeps dont declare dividends much higher chance other stuff might also be sketchy.

harder work yes - but still possible to do 2 year or 5 year check to se if sums match

Thanks (0)
By Mr J Andrews
21st Feb 2024 11:19

It would be interesting if HMRC produced their results of these OTM letters and the statistical numbers of those company accounting years not equating the tax year which will obviously have a bearing.
For that matter it would be interesting if HMRC produced meaningful and truthful statistics.

Thanks (0)
By JS23
21st Feb 2024 12:10

I think its a sensible start by HMRC, I am sure there will be so many people who may have not filed or declared this dividends on their SATR. Be good to know what results come out of this exercise.

Thanks (2)
Replying to JS23:
By Moo
22nd Feb 2024 09:29

HMRC did a similar exercise about 12 years ago (at least for some of the client companies we acted for). I dealt with voluntary disclosures for several years of dividends for couples with PSCs where the clients claimed to have been dealing with their own self assessment. In reality the clients had simply decided not to join the system and see how long they could get away with it. One couple who stick in my memory had around £200K in tax to settle which they were able to raise by remortgaging their house. When I asked what they had been doing with the money they should have been paying in tax the husband said they had used it to extend and improve said house. Given increases in property values he seemed to think his approach had worked out OK even with penalties and interest on the eventual tax.

Thanks (0)
21st Feb 2024 14:54

For all my corporate clients, I also act for the individual directors, so their dividends are included on their returns with no problem. But I have some companies with non-director shareholders, for whom I do not act. In those cases, the best I can do is advise the directors to themselves advise the other shareholders of their disclosure obligations.

Thanks (1)
By Green90
22nd Feb 2024 12:33

I received one today for one of my clients. The letter stated the declared profit as -£17,568 (not the real number) and the reserves have dropped, we suspect an undeclared dividend etc

Note the '-' in front of the number.... I replied to HMRC pointing out that a negative profit was normally referred to as a loss and this generally leads to a drop in reserves of the exact same amount.

The company had negative reserves in any case, so couldn't declare a dividend.

Looks like their system is working well.

Thanks (1)
Replying to Green90:
By rmillaree
22nd Feb 2024 12:54

someone really should take hmrc to task if they cant avoid obvious reasons why their letters may be nonsensical.

Perhaps they are that stupid that they are even taking numbers from companies house (no dividends) rather than taking info from ct services where they actual have the dividends totals. didnt cross my mind that they might have the divis figure (or no its nowt) and still manage to not look at that.

doesnt take much to turn what is a great idea into a [***] how if they cant get their own house in order.

Thanks (0)