QUESTION: I own shares in a family company and have received a letter from HMRC asking me to consider if my 2020/21 tax return is correct. My accountant helped me prepare my tax return, should I get them to help with my reply to HMRC?
ANSWER: HMRC will have issued a similar letter to many individuals in the recent weeks, they have aimed them at individuals named as persons of significant control (PSCs) on Companies House who have declared income of below £100,000 or who have not submitted a tax return at all.
The PSC regime was introduced in April 2016, requiring companies to identify relevant persons who ultimately control the company thereby looking through any layers of ownership there are. Broadly, a PSC is a person who:
• Directly or indirectly owns more than 25 per cent of the shares in a company;
• Directly or indirectly holds more than 25 per cent of the voting power of a company;
• Has the right to appoint or remove the majority of directors of a company; or
• Can exercise significant influence over the company.
As much of the information about PSCs is available on a public register at Companies House, it is also available to HMRC. HMRC’s wealthy team is sending two different nudge letters to some individuals listed on the PSC register.
The first letter is directed at individuals who appear on the PSC register and have submitted 2020/21 tax returns declaring income of less than £100,000. The second letter is targeted at PSCs who are not currently submitting self-assessment tax returns.
The letters invite taxpayers to consider whether there are any undeclared tax consequences of their interactions with the company of which they are a PSC. Typical sources of income related to a company would include salaries, dividends, benefits received from the company such as use of company car, receipt of a share options or shares at a discount and the proceeds from a disposal of shares.
While these letters do not represent a HMRC enquiry, it is worth reviewing your income for that year to make sure you included all sources of income on your tax return in that year and amend your tax return by January 31 next to include any missed sources of income. Failure to do so may result in HMRC opening an enquiry and penalties may be charged if errors are uncovered.
HMRC may not have specific information to believe you have under-declared the income in your tax return - one would imagine they would open an enquiry if they did. But rather these letters aim to “nudge” company shareholders to come forward and disclose where their tax returns are not complete before they undertake investigative work to uncover non-compliant taxpayers.
It is expected that in the coming months, we are likely to see an increase in tax enquiries as HMRC appear to be allocating resources elsewhere as presumably the need for Covid-19 supports and checks has decreased.
Most taxpayers of course are honest but can become collateral damage in a HMRC ‘campaign’ and for this reason professional fee protection insurance is becoming increasingly popular, if not essential for the business owner who, if investigated by HMRC does not have to worry about the cost of confirming their tax compliance.
:: KellyAnne Murtagh (k.murtagh@fpmaab.com) is senior manager at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
