You will likely by now be familiar with my commentary around HMRC’s ‘one too many’ approach, via the coveted ‘nudge letter’, that seeks to ‘raise awareness of a specific issue around tax compliance and gives the customer an opportunity to make sure they’re getting their tax right’.
HMRC has recently confirmed that they have issued hundreds of nudge letters to non-domiciled individuals. These will not have been issued at random, but rather HMRC has identified cohorts of taxpayers that have been either resident for 7 out of the past 9 tax years or 12 of the past 14 tax years, and therefore in order to be taxable on the remittance basis, they would, in most cases, need to pay the remittance basis charge of 30k or 60k respectively.
Whilst we specialise in advising non-domiciliaries, even we can appreciate that the nuances and technical specificity which can impact a taxpayer subject to the remittance basis, are incredibly complex.
If you or your client receives such a nudge letter, before reverting, we would strongly recommend, as indeed HMRC’s letter specifies, that professional advice is sought to ensure an individual’s UK tax affairs are compliant.
Two areas I have found as key to the analysis where there is room for error, albeit unintentional, are:
- Tax residency – governed by the Statutory Residence Test as introduced by Finance Act 2013
- What constitutes a remittance?
An area of confusion for some clients arises from when they believe themselves to have been tax resident in the UK, or not resident. Often taxpayers arriving in the UK associate their tax residency as commencing around the time they obtain an appropriate visa for residing in the UK. Clients not from the UK, are not necessarily aware that they can trigger tax residency in the UK whilst visiting the UK on a tourist visa. Equally, I see many instances of individuals transferring funds for an investor visa or the purchase of UK residential property in a tax year that they have triggered tax residency in the UK – here it is key that if they are to claim the remittance basis of taxation, the transfer occurs prior to the tax year of residency, otherwise this could be a taxable remittance. But if this has happened, it is also worth exploring the availability of split year treatment.
Equally swiping the wrong credit card in the UK could trigger a remittance, and an audit of your UK expenditure may be required to ensure inadvertent remittances have not been made. Whilst complex rules govern the non-domiciliary regime in the UK, there are significant tax advantages where the taxpayer obtains specialist advice.
Ignoring the letter will not be beneficial, especially in instances where there may be some tax regularisation element; the behaviour of the taxpayer, by way of co-operating with HMRC is one of the factors that we can take into consideration when negotiating penalties with HMRC on behalf of the client. We have also had much success with suspending penalties for taxpayers who pursuant to a nudge letter have used the worldwide disclosure facility to regularise their tax affairs.
The WDF is a voluntary disclosure opportunity where UK taxes are due in respect of offshore matters. HMRC encourage tax payers to come forward following increased tax transparency and the nudge letter specifies that one should use the WDF where the taxpayer has an offshore matter to regularise. HMRC has now received information from over 100 countries with respect to individuals residing in the UK, following the implementation of the OECD’s Common Reporting Standard (CRS).
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Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.
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