One to Many letters to Persons of Significant Control – what you need to know
The One to Many (OTM) approach is where HMRC sends one standard message to many customers (i.e. taxpayers).
The aim is to influence a large group of customers’ behaviour, so they are more likely to comply with their tax obligations. It is usually based on a particular area of taxation where HMRC deem there to be a risk that many customers to be non compliant. An OTM approach is not a formal compliance check.
Recent OTM approaches have focussed on deemed domicile, employment income and investment income.
Who will receive the letters?
HMRC are sending OTM letters to individuals who are named as a Person of Significant Control (PSC) of a company at Companies House. The letters will be sent in October and November 2020 and it will indicate the intention is ‘to help make sure that your return is complete and correct’ and will describe the conditions to be a PSC:
- Hold more than 25% of shares or voting rights in a company
- Have the right to employ or remove most of the board of directors
- Have significant influence or control in a company
The OTM letter will also state that the person should be aware that there may be tax consequences as an individual if they:
- Use the company to pay for personal costs
- Have the use of business assets
- Transfer assets to or from the company
- Receive loans and do not pay interest at an official rate
- Receive loans which are not paid off
- Take up an option to buy shares
- Take value from the company
Other OTM letters have been sent to individuals in control of a mid sized business but are not registered for Self-Assessment. The letter asks them to check if they should be registered and provides assistance on how to register.
What you need to do now
The OTM letter requests that you make sure your tax return includes all sources of income including any from the list above, and to make an amendment if it doesn’t. Receiving an OTM does not imply you have done anything wrong and is intended as educational and to assist taxpayers. It is a “nudge theory” approach where HMRC are trying to flag to taxpayers issues that HMRC will look at, and in turn that will mean the taxpayers are more likely to correctly report any taxable aspects to HMRC.
As stated above, an OTM letter is not an indication that anything is wrong with your tax affairs, but if you do have matters that should be reported and which are included in the list in the PSC OTM, it may be harder to argue that you weren’t aware of the tax issues if HMRC were to prove on enquiry that items had been omitted from a return. It may therefore be harder to negotiate penalties to a lower level if HMRC can show you were in receipt of such a letter and still omitted the items from your return.
At the same time, if you have received an OTM letter and are happy your return is correct, then you do not need to do anything.
Receiving such a letter will probably have the effect HMRC want for most taxpayers; it is a good prompt and reminder to ensure you have considered all factors when preparing your tax return or to check if you need to register to file a return at all.
If the receipt of the letter from HMRC, or reading this blog, causes you realise that your tax returns have been incomplete, we can help.
We assist clients in dealing with HMRC, including the making of disclosures to HMRC about undeclared income and capital gains.
If you require assistance, please do not hesitate to contact us at email@example.com.