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Have you declared your company dividends correctly?
4 April 2024
Accounting & Compliance
Declaring Dividends
Company directors need to declare the dividends they receive on their annual tax returns so that they can pay the correct amount of tax.
The first £2,000 of dividends received is tax-free for the tax years 2020/21, 2021/22 and 2022/23.
That tax free allowance reduces to £1,000 in 2023/24 and further to £500 in 2024/25.
Any amounts received above the limits are taxable at the recipient’s top rate – for basic rate taxpayers the dividend rate is 8.75%, for higher rate taxpayers it is 33.75% and additional rate taxpayers pay 39.35% on dividend income.
HMRC believe company owners have not been declaring their income from company dividends correctly and have started to send out “nudge letters” encouraging anyone affected to come forward.
How do HMRC know about the undeclared dividends?
In recent years HMRC have had access to third party information that has enabled them to identify income that has not been shown on self-assessment tax returns.
One such source is data from Companies House.
HMRC can see where company reserves have fallen despite the accounts showing profits.
That would indicate dividends and distributions have been made, so if none have been shown on the shareholders’ tax returns HMRC become suspicious.
What should I do if I receive one of these letters?
As with all of HMRC’s nudge campaigns they sometimes get it wrong!
If you do not receive company dividends or have correctly declared those you need to respond to HMRC by telephone or email.
If you do not do so they may open a compliance check into your tax returns.
If, however, you do have undeclared income HMRC have offered for taxpayers to use an online disclosure facility.
There you will be able to declare any previously undeclared income, calculate the tax owing plus interest and penalties.
You will need to pick a penalty rate depending on the circumstances of non-declaration.
Is it only dividend income I should declare on the online disclosure?
No, you should use the facility to declare any undeclared income for any tax year, or indeed any other undeclared tax due, including capital gains tax, inheritance tax and corporation tax.
What should I do if I have undeclared income but have not received a letter from HMRC?
You can still use the online disclosure facility.
In fact it is better to make a declaration before HMRC contact you because your penalty rate will always be lower that way.
I want to come forward about some undeclared income but find the process too daunting
This is where we can help you.
We have lots of experience dealing with tax investigations and helping clients make declarations through HMRC campaigns.
If you would like to find out more contact Jan or call us on 01634 731390.
Our services
If you would like to find out more about some of our services that might help you please take a look at our related pages:
Blogs related to HMRC Declarations
Take a look at our other blogs on the topic of declarations to HMRC:
The content in this blog is correct as at 3rd April 2024. See terms and conditions.
