Persons with Significant Control: What You Need to Know
Her Majesty’s Revenue and Customs (HMRC) is intensifying its efforts to target Persons with Significant Control (PSC). This initiative aims to ensure that individuals with substantial influence over UK companies comply with tax regulations.
In its latest initiative, HMRC is contacting Persons with Significant Control (PSC) who have either not filed a tax return or may have undeclared income.
Under the PSC regulations, companies must identify all individuals who have control over them and report this information to Companies House. HMRC has reviewed these details and is contacting PSCs who may need to take further action. There are two types of letters being sent:
The first letter advises the PSC to review their 2022/23 tax return and correct any errors by 23 August 2024. It includes instructions on how to make these corrections and encourages the individual to ensure their 2023/24 tax return includes all income and gains.
The second letter targets PSCs who have not filed a tax return. It asks them to determine if they need to register and submit a return. If a return was required for 2022/23, they must register and file it by 23 August 2024. Failure to do so may result in HMRC imposing a penalty for failure to notify. If the PSC believes they do not need to file a return, they should contact HMRC using the provided contact details.
The letters explain that if HMRC identifies an error in a submitted return or finds that a return should have been filed, it may initiate a compliance check.
HMRC may issue a determination for those who have not filed a return, allowing it to estimate and collect the tax owed.
The letters also provide examples of situations where a PSC might receive income or benefits from a company for tax purposes, such as:
- The company paying the individual’s personal expenses.
- The individual receiving a loan from the company and not repaying it.
- The individual using the company’s assets without charge.
Understanding the implications of PSC is crucial for business owners, directors, and stakeholders.
Who Are Persons with Significant Control (PSC)?
A Person with Significant Control is an individual who meets one or more of the following criteria:
- Ownership of shares: Holds more than 25% of a company’s shares.
- Voting rights: Controls more than 25% of the voting rights.
- Board influence: Has the right to appoint or remove the majority of the board of directors.
- Significant influence: Exercises or has the right to exercise significant influence or control over the company.
- Trusts and firms: Controls a trust or firm that meets any of the above conditions.
Key Compliance Steps for Persons With Significant Control
- Accurate Reporting: Ensure all information about PSCs is accurately reported in the company’s PSC register and with Companies House.
- Regular Updates: Keep the PSC register up-to-date with any changes in control or influence.
- Transparency: Be prepared to provide detailed information about the nature and extent of control.
- Tax Compliance: Ensure that all tax obligations are met, including the correct reporting of income and capital gains.
Potential Penalties
Non-compliance with PSC regulations can result in severe penalties, including:
- Fines: Companies and individuals may face substantial fines for failing to maintain accurate PSC records.
- Criminal Charges: Persistent non-compliance can lead to criminal charges against the individuals and entities involved.
- Reputational Damage: Public knowledge of non-compliance can damage a company’s reputation and its relationships with stakeholders.
How to Stay Compliant
Regular Audits
Conduct regular internal audits to ensure that all PSC information is accurate and up-to-date. This can help identify and rectify discrepancies before they attract HMRC’s attention.
Professional Advice
Seek advice from tax professionals such as Maynard Johns Chartered Accountants, who specialise in corporate governance and tax compliance. They can provide tailored guidance to ensure full compliance with PSC regulations.
Training and Awareness
Educate board members and key stakeholders about their responsibilities under the PSC regime. This includes understanding what constitutes significant control and the importance of timely and accurate reporting.
HMRC’s increased focus on Persons with Significant Control underscores the importance of compliance for UK companies. By maintaining accurate records, meeting reporting obligations, and ensuring tax compliance, businesses can avoid significant penalties and foster a culture of transparency and accountability.
If you need help with your tax planning and ensuring compliance with HMRC, get in touch now on 01237 472071.