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Opening a tax letter from HMRC
istock_Alphotographic_AW_HMRC letter

HMRC nudges more company controllers

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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.

30th Jun 2023
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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.

A PSC is broadly a person who:

  • holds (directly or indirectly) more than 25% of the shares or voting rights in a company; or
  • has the right to appoint or remove most of the directors of a company; or
  • has significant influence or control over the company.

Phase 2

In this phase, the HMRC Wealthy Team is sending a total of 1,790 nudge letters targeted to the following groups of PSCs:

  1. Those who declared income under £100,000 in their most recent return.
  2. 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.”

Why £100,000?

We asked HMRC 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 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.

Commenting on phase 1 of this educational campaign, AccountingWEB member ireallyshouldknowthisbut noted 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
  • Share options
  • 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 protected] 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. 

Agents’ work

Where the taxpayer has authorised a tax agent to act for them, that agent should also receive a copy of this nudge letter.

AccountingWEB members may be unhappy that HMRC is yet again sending letters that alarm their clients where there is nothing additional to declare.  

Replies (27)

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By Justin Bryant
30th Jun 2023 16:02

Here's an easy one. For HMLR £1m+ property purchases, check if the owner's tax history is consistent with that. Rinse & repeat for £50k+ car purchases (from DVLA records etc.).

Thanks (6)
Replying to Justin Bryant:
paddle steamer
By DJKL
30th Jun 2023 17:00

What about borrowings and other assets. You can borrow fund quite readily if you already have other assets and these other assets may not really feature in one's tax returns.

Pretty certain a bank would lend me funds on the basis of the house we own, our pension schemes (lump sums still to be taken) and our whole of life policies which have reasonable current values.

Years ago I used to borrow against endowment policies that we held, re these policies HMRC did not know they existed as they post dated tax reliefs re same and never featured on our tax returns.

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Replying to DJKL:
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By Hugo Fair
30th Jun 2023 17:52

Well quite (he says putting away the handheld mirror), some people:
- receive dividends in excess of £10k pa (but all from publicly listed companies);
- refuse to take salaries > £100k (based on needs not just tax complexity);
- are income poor but asset rich (pensions but also ISAs/property/collections);
- find non-reportable assets (eg the range of NS&I products) strangely seductive;
- are focused on moving capital down the family line more than on spending it;
- enjoy keeping their life simple far more than trying to keep HMRC happy!

And yet I know someone (picking up the hand-mirror again) who keeps being taken out of SA by HMRC and has to almost beg to be put back in again.
On the plus side, I guess I won't be receiving these latest 'nudge' letters!

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Replying to DJKL:
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By Justin Bryant
30th Jun 2023 18:12

In my experience most lenders lend based on your income (rather than asset) ability to repay the loan. In any case, that's obviously not a good reason on its own to pooh-pooh my idea is it (and even if all lenders lent based on assets, the same tax history consistency point applies re those assets, inheritances and lottery wins etc. notwithstanding)?

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Replying to Justin Bryant:
paddle steamer
By DJKL
03rd Jul 2023 09:31

To a degree they lend on income but not always, the private banks that have as their clients High Net Worth individuals in my experience adopt myriad lending criteria.

Often they are obliging as they have say the parents as customers but want to get client continuity through the generations so lend to the children notwithstanding their incomes may not yet be that high. (With of course deposits etc coming from the parents and sometimes guarantees)

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Replying to DJKL:
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By moneymanager
03rd Jul 2023 14:46

Blimey, borrowing against life policies, that dates things a bit!

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Replying to Justin Bryant:
By Duggimon
03rd Jul 2023 11:54

We could all pick at nits all day as to the best way to refine this or those situations where some would fall through the cracks, but I think as a suggestion this is excellent.

Very neatly achieves the dual goal when dealing with big data of keeping the criteria simple, easily achievable and easily applicable while also capturing a significant proportion of those you wish to target.

It's not about catching everyone, it's about catching as much as possible with the resources you have and your approach is far more neatly targeted than HMRC's current approach of "let's nudge random small sections of people who, if they are the paranoid types who are already completely compliant might give us extra tax they don't owe, or, if they are dodgy, will ignore our letters because it's a toothlessly vague insinuation".

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By Nebs
03rd Jul 2023 09:51

I sent a nudge letter to HMRC, asking if they could please reply to my letter of 6 weeks ago. It didn't work.

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Replying to Nebs:
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By ds
03rd Jul 2023 13:43

You might suggest a fifty pound penalty be applied to them if they fail to reply in a reasonable time.
Are penalties actually legal in any case, or is it a matter of they try it on and people pay up ?

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Replying to Nebs:
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By SkyBlue22
03rd Jul 2023 14:38

HMRC have informed me that a client NI query is being referred to back office... estimated date of completion, end of October!

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By Yossarian
03rd Jul 2023 09:56

We'll be getting a lot of these letters here in t'north then. I can't remember the last time I saw an owner of a company with income of over £100k on their tax return. Most assiduously keep their dividends below that level to avoid losing any of their personal allowance.

Thanks (6)
Replying to Yossarian:
By kenny achampong
03rd Jul 2023 10:42

Same here in London. Very few, if any, of mine have ever gone over £100K. So how many letters are they planning to send? I'd guess it applies to high 90's% of companies. Maybe they should think about sending out tax bills instead. Or object to companies getting struck off without ever filing or paying anything. It's just another misguided and totally pointless waste of our money. That being said, I havnt received any yet, so maybe they arnt very good at misguided and pointless tasks either.

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By malero
03rd Jul 2023 09:57

So that's why they closed their SA phone lines.

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By JCresswellTax
03rd Jul 2023 10:00

PSC & £100k - what a leap to make.

Another waste of resources that could be used actually servicing those who need it!

Thanks (7)
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By [email protected]
03rd Jul 2023 10:07

Will HMRC really follow-up on such a blunt and unfocussed sweep?

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Replying to [email protected]:
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By RandDTaxUK
03rd Jul 2023 10:52

Oh yes HMRC would. Given that they set up a "task force" with insufficient training to be able to talk to anyone about the enquiries they were sending out. But just targeted everybody in two or three SIC codes that made an R&D claim and included in their reasons for attempting to deny some (not one's we had made but one's referred to me when their advisers found they were outside their comfort zone. The commercially illogical reason, even if they had not supposedly had R&D training is "You cannot qualify for R&D Tax because you are developing a product which you intend to be for the good of your own business". This stems from a common failure in (the since 2010) R&D teaching of inspectors who are being told an incorrect basis for the meaning and use of "overall knowledge in a field". Those in the original HMRC units from 2005/6 knew the correct basis, because it was in the eligibility training I wrote for them and well as those that make up the majority of the Big4 R&D Tax Partners now. For the avoidance of doubt you can be developing it PURELY for the benefit of your own company and if HMRC try to quote/reference section 6 as "proof" you cannot, that is the ultimate evidence of the poor training given in 2010 by a person with no product development experience who sadly is still spouting rubbish and duping accountants and others to be 'trained' by him in 291 minutes. To be anything like 'good' takes 3-5 years of monitored training AND you need at least 5 years of industry experience to really understand. The monitoring in our case is done by somebody with 20 years industry R&D experience managing projects of over £1bn budget and following that over 20 years R&D tax experience. HMRC are trying to deny claims with persons who are not allowed to talk on the phone because their ignorance of the law would (as has occurred with us) be shown in 5 minutes. But it still shows in their letters. I would note, there are some Inspectors who despite this have taken it upon themselves to understand better and correctly. But it is clearly a concern that HMRC staff can be 'let loose' on client claims with less than one days 'training' that is in itself incorrect. If they will do that on R&D where we have found an Inspector who did not know what "Electrical Resistance" was attempting to deny a claim to a competent professional Electronics engineer with 30+ years experience. Then clearly, they will try it anywhere and the letters state that "HMRC Commissioners do not necessarily agree with the opinions expressed.." So they let them loose poorly trained and then don't take responsibility for doing that. Also sounds like what happens with new Ministers!

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By RandDTaxUK
03rd Jul 2023 10:13

Why £100,000? They will have no doubt why mine is because I told them when I took a larger dividend on the last one before Jeremy Hunt decided to pander to 'the wider' public backlash over abolition of the 45% rate that as he had made the position of taking income between £100,000 and £150,000 a marginal tax rate minefield for the first £25,000 and then taken away the only reason for going through it away with the 45% rate. That instead my civil partner and I would now take less than £100k each. If HMRC cannot work out that if you are going to 'sting' people excessively above a threshold. Before anybody says it, there is a lot of difference between the 'abolish 45% and you will collect overall more tax' and "trickle down" which then relies on then spending what you take. The former has been shown to happen and the very fact that HMRC are seeing less than £100k being taken and targeting that shows that the reverse is happening and/or they expect it to happen. It is trickle down that is the one that fails to materialise, or at least does not materialise enough to make it proven. But as the country needs more tax why not actually allow people to take more income as early as possible without penalising them when it is for the good of the economy. Look at some of the figures on how cash within businesses has grown or at least remained stable against the trend of overall business income / growth. Otherwise those that could take significantly over £150k before and £125k now (so they might as well not take the hit on personal allowance if they don't need to, surprise, surprise Jeremy people take below £100k when they can. Because they will leave it in their business and take their £100k annual 'ration' and or use the options others have discussed.

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By [email protected]
03rd Jul 2023 10:40

Oh to have listened in on the meeting when it was decided this was a good idea...

(JFK: "Which idiot's idea is this?")

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Replying to [email protected]:
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By ds
03rd Jul 2023 13:45

Too many idiots work there, they can't tell the difference between good and bad.

Thanks (1)
Replying to ds:
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By spilly
03rd Jul 2023 23:23

Judging by the ones I speak to on the rare occasion that they actually answer the phones, they mostly seem to just be indifferent.

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By Ultra164
03rd Jul 2023 11:15

Funniest thing in this article is the line "call (HMRC)
: 03000 520 503, if they don’t think they need to submit a return."

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By ireallyshouldknowthisbut
03rd Jul 2023 11:23

This is bizarre

The stated criteria would sweep in hundreds of thousands of people. It would sweep in probably 90+ of our clients alone, and myself.

There are 2 million companies on Companies House. Sub £2k letter is a tiny fraction.

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By Duggimon
03rd Jul 2023 12:03

I would have to guess that all PSCs under £100K income must surely cover 90% of them at least. There are 2.1 million companies, even at a conservative estimate of 1.1 PSCs per company and a (rather high, I think) estimate of 10% of them earning over £100K pa, that still means 2,079,000 letters going out to people who own and run companies and really should already be largely aware of whether they need to file a tax return.

If they were properly accountable we'd be able to see what the cost of this was vs the additional tax revenue generated in response.

Thanks (3)
Replying to Duggimon:
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By Yossarian
03rd Jul 2023 12:38

If I were a gambling man I'd bet that the cost of doing this will significantly exceed the additional tax revenue raised.

What a totally pointless exercise.

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Replying to Yossarian:
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By [email protected]
03rd Jul 2023 18:58

If it fails it will be called an educational exercise

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By Karen whitehead
03rd Jul 2023 15:33

I have just received a reply to a letter I sent to them on 17th January 2022. No that is not a typing error 17 months to reply to a letter and yet they have time to send these out. Absolutely ridiculous. I have not got the time to be responding to the phone calls that I am going to get from the 90% of my PSC's who earn less than £100,000!!!

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By AndrewV12
05th Jul 2023 10:59

Why £100,000?
We asked HMRC 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.
Good article, £100,000 I would estimate 95 % of directors/ shareholders/PSC declare an income of less then 100K.

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