Do you have undeclared dividend income?

Whilst receiving such a letter can be daunting, it doesn’t necessarily mean that you have done anything wrong. HMRC often uses external sources to help flag potential underpayment of taxes. In this case, it is using company year-end accounts, which are publicly available, to find cases where the reserves have gone down, despite the company making a profit for the year. This indicates that dividends may have been paid during the year, but what it cannot show is whether the recipients should have paid taxes on those dividends. It could be, for example, that the dividends were tax free because they were lower than any available personal allowance and/or dividend allowance.

Unfortunately, this “wide net” approach means that many individuals, perhaps including vulnerable ones, will receive letters which could be misinterpreted as an accusation of tax avoidance. If you receive a letter, try not to worry. Simply check whether any dividends were received from the company/companies specified. If you have already declared them, you should let HMRC know using the number or email address on the letter. If you do need to declare dividends, use the specific online disclosure facility to do so.