HMRC Nudge Letters – Introduction
The Common Reporting Standard (CRS), initiated in 2017, has significantly enhanced HMRC’s ability to track overseas financial assets and income.
This article explores the implications of HMRC’s “nudge” letters, which prompt UK taxpayers to verify their offshore tax affairs.
Details of the CRS
Under the CRS, most countries, including traditional tax havens, now exchange information with the UK.
This global initiative aims to combat tax evasion and reduce non-compliance.
HMRC receives detailed annual reports from participating countries about UK taxpayers’ offshore assets and income.
Nudge Letters Explained
Since 2017, HMRC has been sending “nudge letters” to taxpayers. These letters inform recipients that HMRC has data suggesting they may have undeclared overseas income or gains taxable in the UK.
The letters ask taxpayers to either declare additional tax liabilities via HMRC’s Worldwide Disclosure Facility (WDF) or confirm that there are no undisclosed liabilities by signing a declaration certificate.
A response is typically requested within 30 days.
Responding to Nudge Letters
While there is no legal obligation to respond within 30 days or sign the declaration, ignoring these letters can lead to a formal investigation.
It is crucial for taxpayers to seek professional advice before responding to minimize the risk of an invasive investigation and potential penalties.
Complications in Determining Tax Liabilities
Determining tax liabilities can be complex, especially for individuals who may not have been UK residents or domiciled for tax purposes.
Non-UK residents are not required to report overseas income in the UK.
However, UK residents are taxed on their worldwide income, which can lead to misunderstandings and non-compliance.
Penalties
Penalties for undeclared taxes are calculated as a percentage of the “potential lost revenue” (PLR) and can range from nil to 200% or more.
Factors influencing the penalty include the behavior causing the non-compliance, cooperation during the investigation, and whether there was a “reasonable excuse” for the failure.
HMRC Nudge letters – Conclusion
HMRC’s “nudge” letters serve as a reminder for taxpayers to review their offshore tax affairs. Professional guidance is recommended to navigate the complexities of tax compliance and avoid potential pitfalls.
Final thoughts
If you have any queries about HMRC nudge letters, or UK tax matters in general, then please get in touch.