Unpicking the HMRC ‘nudge letter’

Further to our blog on 27th February 2019, we note a marked increase in the number of ‘nudge letters’ being issued by HMRC’s ‘Risk and Intelligence Service, Offshore’ unit to individuals that have non UK (in HMRC’s terminology, ‘offshore’) assets, income and/or gains. These ‘nudge letters’ are the latest round of HMRC ‘batch letters’ to be sent to individuals regarding whom, information has been received from tax information exchange agreements with other countries, including the wide reaching Common Reporting Standard (CRS). To refresh, there are now over 95 countries that have signed an agreement to implement the CRS, with the ‘early adopter’ countries having exchanged information back in 2017 and the balancing countries from 2018. We are now in an environment where the exchange of information is automatic and annual; the information HMRC receive includes account balances, income (dividends and interest) and gross proceeds from redemptions.

The ‘nudge letter’ advises taxpayers that it is their responsibility to tell HMRC about their liabilities relating to ‘offshore income and gains’, and reminds them of the importance of checking that they have declared all of their income and gains subject to UK tax. The Chartered Institute of Taxation (CIOT) has been in discussion with HMRC with a view to guiding its members as to the most appropriate way to respond. If an individual receives such a communication from HMRC, it is recommended that the relevant tax payer should seek appropriate tax advice before responding. In line with our initial view, HMRC has confirmed that there is ‘no legal obligation on the individual’ to complete the Certificate of Tax Position, (Certificate) that typically accompanies the letter from HMRC. It is important though that the individual responds, in one form or another, to the letter, so as to limit exposure to a consequential enquiry/investigation being raised by HMRC.

The CIOT has also identified differences between the declarations a taxpayer makes as part of their Self-Assessment tax return (SATR), and the statements within the Certificate – the taxpayer should review these when considering their response to HMRC. There is no de-minimus level on the Certificate identifying an amount below which mistakes do not need to be disclosed. As a result, the bar is set extremely high for an individual to be comfortable certifying that ‘I have declared all of my offshore income, assets, and gains which are taxable in the UK’. Another material difference is that a SATR is in respect to one individual tax year, whilst the Certificate applies to ‘all years’, and does not have the same protections under statute that apply to a SATR.

Hetal Sanghvi, Tax Partner at Edwin Coe comments:

For many clients, in this age of transparency, non-compliance has not been deliberate. When discussing with clients how a mistake may have occurred, they often refer to out of date advice, which may have been received verbally, or perhaps advice was provided by other professionals who may not be appropriately qualified to provide UK tax advice. Some situations involve tax suffered at source on the undisclosed offshore income/gains, or tax filings outside of the UK in the jurisdiction in which the offshore income/gains have arisen.

I urge individuals who could have UK tax exposure to seek advice in advance of a nudge letter; once received the penalty regime the individual is exposed to may be harsher. If a letter has been received, I encourage you to discuss your historic UK tax positon with a tax specialist who can ensure your UK tax obligations have been met and assist in responding appropriately to HMRC. Where a disclosure needs to be made, we can assist with a review of the various options available, and prepare, submit and hopefully, successfully conclude a disclosure to HMRC. The Tax team at Edwin Coe has significant experience in managing such matters, specialising in disclosures under the Worldwide Disclosure Facility, also the recommended route mentioned in the HMRC communications.

On another note, the CIOT has reminded members of the Professional Conduct in Relation to Taxation (PCRT) whereby a member ‘should not undertake professional work which they are not competent to perform unless they obtain appropriate assistance from a suitably qualified specialist’.

The Tax Team at Edwin Coe is ideally placed to assist and advise taxpayers and their advisors, on Tax Disclosure matters. Please feel free to reach out to Hetal Sanghvi or any of the team to discuss your options.

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