About your dividends...

“Dear XX

Please make sure your tax return included all your dividend income.

We’re writing to ask you to check your self assessment tax return for the year ended 5 April 2024. This needs to include all your dividend income from shares in UK companies.

We’ve seen quite a few mistakes in this area on tax returns, and we want to help you get this right. This letter isn’t a compliance check.

If you’ve told us you have an adviser, we’ve also written to them.”

So opens HMRC’s letter issued to a number of self assessment taxpayers. The fact that the document specifically says it is not a compliance check does not mean it can be ignored, although it indicates that HMRC probably have no relevant information.

The tax year covered is 2023/24, one for which most returns will have been sent back to HMRC by January 2025. 2023/24 was the first of two tax years in which the dividend allowance halved, going from £2,000 in 2022/23 to £1,000 in 2023/24 and subsequently to its current level of just £500.

When the cuts to the allowance were announced in the Autumn Statement 2022, HMRC estimated that about 3.2 million people would be affected in 2023/24, increasing to 4.4 million in 2024/25 (nearly three-quarters of all dividend recipients). The correspondence suggests that HMRC are not seeing the numbers that had been anticipated.

One problem for HMRC is that while there is an automatic system for banks and building societies to report interest paid, no such mechanism exists (yet) for dividends. This is likely historical – basic rate taxpayers generally had no tax to pay on dividends, a situation which continued when dividend tax credits were replaced by the dividend allowance (at the initial level of £5,000) in April 2016.

If you receive the HMRC dividend letter, make sure that your reported 2023/24 dividend totals are correct and, if not, you or your adviser should either amend your online tax return or write to HMRC by 31 January 2026.

If you find keeping track of dividends difficult, then consider a review of the way in which you hold your investments.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.