In 2021, the International Consortium of Investigative Journalists released over 11 million documents from 14 offshore service providers, revealing previously hidden owners of offshore companies, bank accounts and other assets. This release is known as the Pandora Papers. From 5 June 2023, HMRC have started to issue ‘nudge’ letters to taxpayers they believe now have offshore income or gains to report directly as a result of information they have found in the Pandora Papers.
Have you received a ‘nudge’ letter?
HMRC have started to review the huge volumes of data provided by the Pandora Papers and the first phase of HMRC’s response has now begun with letters issued to hundreds of taxpayers. The letters give taxpayers 30 days to check their tax position and respond if tax is due.
If you have received a letter from HMRC, the best thing to do is to act on it if there is undisclosed tax. HMRC will continue to investigate the information within the Papers and in the most serious of cases HMRC will either open a COP9 investigation or they may commence criminal proceedings.
When can the Worldwide Disclosure Facility be used?
In cases of non-deliberate offshore non-compliance, the Worldwide Disclosure Facility (WDF) may be the most appropriate process. The WDF allows taxpayers to voluntarily disclose a UK tax liability relating wholly or partially to offshore issues. A disclosure of the tax, interest and penalties due can be made online within 90 days of registering for the facility.
What is the Contractual Disclosure Facility and Code of Practice 9?
The Contractual Disclosure Facility (CDF) and Code of Practice 9 (COP9) is a process which allows taxpayers to disclose liabilities where there has been deliberate behaviour or fraud. The benefit of a disclosure under the CDF is that taxpayers can bring their UK tax affairs up to date on a civil basis, giving them protection from criminal prosecution, as long as a complete, open and honest disclosure of all deliberate behaviour is made. The protection from criminal prosecution is not available via any other disclosure method.
What to do now
We can expect HMRC to issue further letters in the next phases of their response to the Pandora Papers. If you have not received a letter but believe you have tax to disclose, the best thing to do is register to make a disclosure as soon as possible. An unprompted disclosure may carry lower penalties than a prompted disclosure.
If you have received a letter, the best course of action is to act on it and discuss with a specialist tax disputes adviser as to what type of disclosure you need to make.
If you need to make a disclosure and choose not to come forward, you can expect HMRC to open an enquiry into your tax affairs. The downsides of adopting a ‘wait and see’ approach include:
- Not retaining control over the enquiry and facing uncertainty that can last many months or years;
- Higher financial penalties, particularly in cases where HMRC has issued a nudge letter to the taxpayer;
- The risk that HMRC will start focusing on other aspects of your tax affairs, even if there are no other issues;
- The risk of criminal prosecution in the most serious cases of deliberate behaviour and tax fraud.
If you would like specialist advice regarding your on and offshore tax affairs and any disclosures that may need to be made to HMRC, please contact Menzies’s Tax Disputes and Disclosures team below: