Offshore income or gains? HMRC has your number

HMRC’s efforts to combat offshore tax evasion have been given a boost following the receipt of the 2018 wave of financial information under the Common Reporting Standard (CRS).

Using this data, HMRC has issued letters to individuals stating that information now in HMRC’s possession indicates that the taxpayer has received foreign income and/or gains which may be taxable in the UK. The letters specifically mention that the information has been received via exchange agreements with other countries.

These seemingly neutral letters, known as ‘nudge’ letters are designed to encourage people to consider their tax position. The current examples acknowledge that the vast majority of people declare their taxable income and gains and point out that changes in the law or in one’s personal circumstances can render previous advice obsolete or out of date. Although not laboured, this latter point links in with HMRC’s recent campaign where they stated that reliance on out of date advice could lead to individuals falling foul of the new increased penalties levied under HMRC’s Requirement To Correct (RTC)/Failure To Correct (FTC) regime. This went ‘live’ on 1 October 2018.

Where the ‘nudge’ letters take an unwelcome turn, is the attached ‘Certificate of Tax Position’ accompanying it. Rather than asking individuals to get in touch, it instructs individuals to sign a statement that either:

1. Their tax affairs need to be brought up to date and a formal disclosure will follow; or
2. They have declared all their income and gains.

The Certificate includes a warning about how making a false statement can be a criminal offence, one that can result in prosecution. This approach seems heavy handed but is in line with HMRC’s current thinking that the influx of information from foreign Fiscal Authorities means there is no longer any need for the ‘carrot’ and it is very much the ‘stick’ approach going forward. It is not mandatory to sign the Certificate and we strongly advise that individuals seek professional advice before contemplating such a decision.

It seems likely that should you receive a ‘nudge’ letter of this type, HMRC has received information about you from an overseas authority. It does not follow however that there is anything wrong or that you need to either sign the Certificate or make a disclosure. We do though advise that you seek professional advice to ensure that your tax obligations are being met. Our experienced Tax team is ready to assist and would be happy to do so.

Dmitri Surendran, Tax Director at Edwin Coe, who was formerly Operational Head of HMRC’s Offshore Investigation Unit in London comments;

‘Although it is not mandatory to respond to these letters it is important that they are not ignored. They have been issued as a result of information held by HMRC. If the letter prompts your memory of any overseas income or gains which have not been previously disclosed it is strongly recommended that you seek professional advice. This will help to diminish the possibility of a criminal investigation and also mitigate the draconian penalties for Failing to Correct.’

If you wish to discuss this topic further or have any other questions, please contact Bill Duggan, Dmitri Surendran, Hetal Sanghvi, Sean Bannister, or any member of the Edwin Coe Tax Team.

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