Tax on share dividends

John_Pierpoint

Voyager2002 wrote: »

I understood that tax was deducted at source from dividend payments made by companies registered in the UK (a much-criticised reform introduced by Gordon Brown).

Though technically incorrect, the changes made when GB "robbed" the charities, the pension funds and those with incomes below the personal allowance, did make the whole concept of tax on dividends almost beyond the understanding of "the man on the Clapham omnibus".

Perhaps the original poster needs a link explaining The Taxation of Dividends for Dummies before being given advice. I remember at the time I went along to discuss my mother's situation with a tax advice office run by the Revenue and cross checking the advice with a different interpretation printed in the weekend Financial Times.
They were not the same - the FT was right at the time.

Pauline123_2

Thanks all who have posted.

I have spoken to my friend again.

She is a higher rate taxpayer and has been for a number of years and for some of those years she has received a 'P800'.
The only thing listed on the P800 is her salary. She has not been paying any extra tax on her dividends and so probably owes some extra tax.

She has received two pieces of advice and is very confused- I don't know who this advice came from or their knowledge/expertise.

1. Telephone HMRC and tell them about the dividends she has received, that she now realises as a higher rate taxpayer that she should inform them of the dividends.

2. That she needs to make a 'Full Disclosure'.


She says she is not sure about 1. in case she gives the wrong information, says the wrong thing or just dosn't understand what they want - 'Telephone HMRC'.

She says she doesn't know how to go about 2. or if this is right for her, she is on PAYE - 'Full Disclosure'.


She is also worried about the shares in her mothers name and any implications this may have on her mother (who is not in the higher tax bracket).

When she contacts HMRC should she tell them of the shares in her mothers name?


If she telephones HMRC, as in 1. above, what is their likely response?
Has anyone done this - going back a number of years?
Does anyone know what they will require - information/documentation?
She says she can provide a spreadsheet of total net/gross dividends for all years concered and dividend vouchers for all years concerned - would this be sufficient or would they require anything else?
How many years are they likely to want to go back?


I have had a bit of a google of 'Full Disclosure' and what I have read seems to be quite scary.
Has anybody been through this process?
What is involved?
What sort of information/documentation will they require?
How many years are they likely to want to go back?
Will she be required to sign anything?


Can anyone advise as which would be the best way forward?
Are there any other options?

To me the amounts involved seem small, between £700 and £1100 net pa, how seriously would HMRC view this?

Laurajo_2

We recently did this for a client who had under declared divs.

The amount of tax involved was around £100 pa, we gave them figures back to 2000.

They wrote back, said they would collect tax from 2008/09 onwards as they can't go back more than four years, charged 10 PC penalty for being careless.

We just wrote to hmrc, they are normally quite reasonable if you are 'coming forward' and telling them...it's when they have to find the mistakes they get a bit narky.

madgagoo

You're talking about 22.5% of the dividends being the amount of tax evaded at present. So between £157 and £247 per annum.

Technically HMRC could go back to the last return submitted, if they view it as a fraudulent evasion of tax. They could then also charge 100% of the tax due as a penalty, if they view it as a deliberate and concealed evasion, plus interest on the lot.

That is worst case scenario. In reality I would expect HMRC to act as Laurajo suggests and assess back to 2009/10 (08/09 is now out of date) and charge in the region of 10% penalty plus interest.

Put it in writing to HMRC, setting out the dividends received in each year and give (genuine) reasons as to why your friend did not declare this before. Make sure any other income is included too - for example has your friend received any bank interest that HMRC may not have been aware of?

Providing mother's overall income is below £24000 or so then there should be no need for her to declare the dividends. If her income is above this already (or the dividends take it over this amount) then she may also need to let HMRC know, if she is entitled to age related personal allowance. If there is any form of trust arrangement relating to the shares she holds on behalf of your friend, then I would get some expert advice. A constructive trust may already have arisen and therefore the income could need to be declared by your friend, even though the shares are in mother's name.

barak

Pauline123 wrote: »

.....Can anyone advise as which would be the best way forward?.....

Yes! As hinted by Laurajo - find and consult a friendly taxation accountant who will know exactly what to do for the best and enable your higher rate tax-paying friend to stop worrying now and in the future!

John_Pierpoint

There will be lots and lots of people in "the squeezed middle" finding themselves in this situation, as the personal allowance goes up to approach a higher rate coming down.

zygurat789

It is always worthwhile pointing out that the last time a tax return was sent these were declared and then the tax returns stopped coming. I know it's no excuse but....

Pauline123_2

Thanks again to all who have posted

I have spoken to my friend again and she thinks she needs professional advice as she does not feel comfortable dealing with HMRC herself.

Does she need an accountant or a specialist tax advisor? - she has seen on 'Tax Advice Network' website tax advisors who were HMRC inspectors, has anyone used them?.

When she does find an accountant or tax advisor is the information confidential or are they obliged to tell HMRC strait away what she tells them?
Should she tell the accountant/tax advisor about the shares in her mothers name? - posts seem to suggest these are not relevant to my friend.

Her mother's income is below £24000. There is no 'trust arrangement' and not all of the dividend income,from the shares in her mother's name, was paid into my friend's account by her mother.


My friend is on PAYE.
She has only recently realised that for some years over the past 10 years she has just crept into the higher rate tax bracket and for some years it is the dividends that have made her a higher rate taxpayer.
She did receive and file tax returns in the past, and included the dividends on these, but then the returns stopped coming, for the first few years after this she telephoned HMRC to request a return only to be told we don't require one from you.

How would HMRC view these reasons for not declaring?

Pauline123_2

Does anyone have any opinions on my previous post?

In particular does my friend need an accountant or one of the specialist tax advisors she has seen?

Also should she tell the accountant or tax advisor about the shares in her mother’s name or only about the shares that are in her own name?

any further advice appreciated.

xylophone

Though technically incorrect, the changes made when GB "robbed" the charities, the pension funds and those with incomes below the personal allowance, did make the whole concept of tax on dividends almost beyond the understanding of "the man on the Clapham omnibus".

http://www.hmrc.gov.uk/taxon/uk.htm HMRC's take on the question...;)