Tens of thousands of UK taxpayers, pensioners included, are at risk of financial penalty for failing to disclose their dividend incomes for the last financial year.
Their lack of disclosure is because HM Revenue and Customs (HMRC) failed to inform them that they were required to complete and submit a self-assessment tax return.
Those who missed the 5th October 2018 deadline for revealing unreported dividend income for the previous financial year could face a maximum fine of 100% of any tax owed – on top of the tax itself.
HMRC’s inability to update its website to advise individuals about their self-assessment tax return obligations has caused grounds for concern. It is widely feared that many company shareholders are unaware they are falling through the system’s net.
Prior to the 2016-17 financial year, company dividends were paid out to shareholders after a basic-rate income tax was deducted at source.
Since then, company shareholders that receive dividends of more than £2,000 are liable to pay the 7.5% dividend tax themselves through a self-assessment tax return.
Individuals are not required to pay basic-rate income tax on dividends from shares in an ISA. Meanwhile dividends that fall within an individual’s Personal Allowance do not count towards their £2,000 tax-free dividend allowance.
HMRC has insisted there is “discretion” over the financial penalties given to uncompliant company shareholders, particularly if a lack of awareness of the new system is the issue. The tax authority confirmed it won’t “rush to enforce them” until the full picture is ascertained.
There are fears that Mr Hammond could cut dividend allowance further in the upcoming 2018 Autumn Budget as part of plans to raise more funds for the NHS. The Federation of Small Businesses (FSB) has urged the Chancellor to leave the dividend allowance alone.
Mike Cherry, Chairman, FSB, insisted that the Chancellor needed to “back small businesses and their shareholders” instead of penalising them “with a secret tax grab”.