HMRC issuing ‘nudge letters’ nationwide in bid to catch offshore tax evaders

More taxpayers will be receiving ‘nudge letters’ from HMRC this year as the agency cracks down on underreported offshore finances and assets.

These ‘nudge letters’ – formally called certificates of tax position – are primarily sent to individuals with offshore financial interests and ask recipients to confirm they have declared all their offshore income and assets tax.

Tax agencies may receive copies of this letter if a client has been flagged, but according to Josie Hills of Pinsent Masons, accounting agencies can be assured that they will not be affected if their customers file fraudulent tax returns.

Sharing tax information

With HMRC changing to a preventative measure model – one that encourages taxpayers to check their declarations before any investigation is launched – accounting agencies will receive a ‘head’s up’ from the revenue service, allowing them to safeguard themselves against potential liabilities later in the tax year.

While these letters are not new, Hills said that more taxpayers are receiving them and that “anyone that could possibly fall into one of the categories is getting one,” including taxpayers who have provided accurate information to HMRC.

Rather, the letters are normally sent to taxpayers with offshore assets and financial interests, which is communicated to HMRC via the Common Reporting Standard (CRS) agreement, a reciprocal agreement with over 100 countries to share tax information.

Under the CRS, HMRC will receive information on overseas accounts, insurance products, trusts and investments, among others. If a taxpayer is unsure whether their assets were declared correctly, Hills recommends that they consult a tax management specialist on the matter.

Safeguarding the declaration

Despite the uptake in nudge letters, Hills said that while accountants need to do due diligence while filing a client’s taxes, the onus ultimately falls on the taxpayer to provide correct information.

“If a client were to give their accountant or their agent incorrect information, and the accountant were to report that to HMRC, there would be no effect on the accountant there,” said Hills.

While accountants will not be held responsible, Hills said: “There are certain things that you can do in order to identify high-risk areas, potentially prevent someone from making these mistakes, making these errors.”

HMRC recommends taxpayers disclose any errors directly through its Worldwide Disclosure Facility, rather than waiting for an investigation to be launched, and informing its office as soon as undeclared assets are discovered.

“If customers are confident that their tax affairs are up to date, we encourage them to complete the declaration to that effect and return it accordingly,” a HMRC spokesperson said. “If they are unsure, we suggest they seek advice from a tax professional.”

If an agent needs to disclose a client’s assets, HMRC recommends first using the Digital Disclosure Service, which will issue a disclosure and payment reference. Clients must complete a form before HMRC can directly deal with an agent about a DDS-based disclosure.