Are You a Person with Significant Control (PSC)? HMRC’s Watching You

If you’re a director or shareholder of a limited company, there’s a good chance you’ve heard of the term person with significant control (PSC). However, what you may not know is that HMRC is more vigilant than ever regarding PSCs and is sending letters to individuals it suspects may have omitted a few details on their tax returns.

In its latest round of what it calls “one-to-many” letters — better known in the tax world as nudge letters — HMRC is targeting individuals it believes have influence over companies and may not have declared all their income or gains for the 2023/24 tax year.

Who is a Person with Significant Control?

If you directly or indirectly own more than 25% of a company’s shares or voting rights, you’re a PSC. If you have the power to appoint or remove most of the directors, or can otherwise pull strings behind the scenes, you’re a PSC. These rules are enforced by Companies House, and all UK companies are legally required to identify and report their PSCs.

But being a PSC is more than just filing the right forms. It comes with potential tax responsibilities, some of which can be easily overlooked.

Where Things Go Wrong with PSCs

It’s not unusual for people who have significant control over a company to receive income or other benefits through various means. This might include:

• Dividends from the company
• The company paying for personal expenses
• Use of company assets (like a car or a property)
• Transferring assets to or from the company
• Receiving loans from the business
• Exercising share options
• Selling shares at a profit

Any of these could result in taxable income or capital gains. But not everyone realises that these events must be reported to HMRC. And some might assume, wrongly, that if they’re not drawing a formal salary, there’s no tax to pay.

What is HMRC Doing to PSCs?

HMRC has been cross-referencing data from Companies House with its own records. When it spots a mismatch — say, someone listed as a PSC who hasn’t filed a Self Assessment Tax Return or who has filed one that appears incomplete — it sends out letters.

These letters come in two main forms:

• Letter to PSCs Who Have Filed a Return - This version nudges the recipient to double-check their 2023/24 tax return and make sure it includes everything it should. HMRC also uses this opportunity to remind them to be thorough in next year’s return.
• Letter to PSCs Who Haven’t Filed At All - If someone hasn’t submitted a Self Assessment Tax Return for the year ended 5 April 2024, and HMRC thinks they should have, this letter tells them to review their situation. If they should have filed, they’re expected to register and submit a return. If they genuinely didn’t need to file, HMRC asks them to get in touch and explain why.

These aren’t formal investigations. HMRC isn’t kicking off a full-blown tax enquiry yet. However, these letters serve as a warning: a gentle reminder to get things in order before they escalate.

Why HMRC’s Nudge Letters Matter

If you’ve got income or gains that have slipped through the cracks, now’s the time to put it right. Ignoring these nudge letters could result in penalties, interest or worse if HMRC decides to take further action.

Tax affairs can get messy, especially when you’re dealing with company income, dividends, assets and personal benefits all rolled into one. What might feel like a minor oversight can snowball into a bigger issue.

What Should You Do?

If you’re a PSC and have received one of these nudge letters, or have other reasons to think you might be at risk of receiving one, it’s smart to review your tax return carefully. Ask yourself:

• Have I received dividends that I forgot to declare?
• Did the company pay for anything that’s really for my personal use?
• Have I sold shares or exercised options without including the gain?
• Have I used company property for personal reasons without paying tax on the benefit?

If any of that sounds familiar, don’t panic. But don’t ignore it either.

Key Takeaway: Get Help Early

Tax rules can be complicated, especially for business owners and company directors. That’s why it helps to talk to a tax adviser or accountant who can walk you through your position and help you put things right.

At UK Property Accountants, we’re already helping clients respond to these HMRC letters and sort out any reporting issues. Whether you need to amend a return, register for self-assessment or get clarity on your obligations, we’re here to help.

Because when it comes to tax, it’s always better to get ahead of the problem before HMRC decides to dig in its heels.