Just received a HMRC nudge letter? Our Experts can guide you through the process.
Despite the letters often being sent to thousands of taxpayers, they are not sent at random. The letter will be based on data HMRC has obtained on you which may be incorrect or misleading, but an explanation to HMRC will still be required.
Menzies’ advice to taxpayers who are asked by HMRC to complete and return a Certificate of Tax Position, which were introduced in January 2019, is to remind them that there is no legal obligation to do so. The certificates do not specify the tax year(s) which they relate to and do not set a de-minimis level. There are serious consequences for providing a false declaration to HMRC and therefore taking professional advice is essential. Despite not returning the Certificate of Tax Position the letters from HMRC should not be ignored.
If you would like to discuss the Worldwide Disclosure Facility or voluntary disclosures more generally, please call our free confidential hotline now.
What happens if you don’t act now?
If you need to make a disclosure and choose not to come forward, then you can expect HMRC to open an enquiry into your tax affairs. The downsides of adopting this 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 to disclose.
Call our free confidential hotline now!
Why use a specialist adviser for your disclosure?
At Menzies we have a track record of supporting clients with submissions under the Worldwide Disclosure Facility. Our specialist tax disclosures team will help you with the following:
- Discuss with you your personal circumstances to understand what needs to be disclosed, with an explanation to you of the disclosure process;
- Notification and eventual submission of your disclosure to HMRC;
- Preparation of your disclosure computations on the best possible terms, as far as tax legislation will allow. At Menzies our approach is to prepare an accompanying side letter detailing the basis of our calculations and any assumptions made, which helps HMRC review the case more quickly and lowers the risk of follow up questions from HMRC;
- Mitigate financial penalties wherever possible;
- Liaise with HMRC on your behalf to answer any queries raised by HMRC and ensure a swift closure to your case;
- Negotiate a Time To Pay arrangement where needed.
Worldwide Disclosure Facility – reasonable excuse
In some limited circumstances HMRC will accept that the taxpayer has a reasonable excuse or has taken reasonable care when seeking to comply with their UK tax obligations. If accepted, this will have a positive impact on the disclosure in terms of restricting time limits and potentially eliminating the imposition of any financial penalty.
If HMRC have sent me a letter does that mean I owe tax?
Receiving a nudge letter from HMRC does not always mean you have tax to pay. The information HMRC receives from third parties does not always show the full picture, and in some cases you may have received funds offshore that are not taxable in the UK. Your personal situation will factor in too regarding your residence and domicile status, meaning there may be little or no tax to report to HMRC in some cases. However, if you have received a nudge letter about offshore income or gains and believe you have no liability to report, it is always best to reply to HMRC to explain why you don’t think you have a liability – HMRC will have written to you for a reason.
Offshore issues include unpaid or insufficient tax paid in relation to:
– income arising from a source in a territory outside the UK.
– assets situated or held in a territory outside the UK.
– activities carried on wholly or mainly outside the UK.
– funds connected to unpaid or omitted UK tax that have been transferred to a territory outside the UK.
How does the WDF process work?
An online notification is made to HMRC informing them of an intention to make a disclosure under the WDF. On receipt of the letter confirming the taxpayer’s acceptance into the WDF HMRC allow 90 days for the taxpayer, or their advisor, to calculate the tax, interest and potential penalties due. In the most complex cases this can be extended to 180 days. Menzies approach is to also prepare and submit a separate disclosure letter to HMRC to explain the background and make representations on the taxpayer’s behalf.
The tax calculations can potentially go back up to 20 years depending on the circumstances. The nature of the underlying “tax offence”, i.e. whether it is an error in a filed return or whether no tax returns have been filed, as well as the “behaviours giving rise to the loss of tax”, will determine how many years to include in the disclosure.
Tax disclosures with an offshore aspect have become increasingly complex in recent years due to the impact of the Requirement to Correct (RTC), Failure to Correct penalties (FTC), and changes to the offshore tax assessment time limits.
How much will I have to declare to HMRC if I receive a nudge letter?
At the moment, if you are UK resident and either UK domiciled, or non-UK domiciled but have not been claiming the remittance basis, then it is likely you will need to report all your offshore income and gains if these are taxable in the UK and you have not declared them. However, residency and domicile status can be extremely complex and seeking advice before responding to HMRC is recommended. Where possible, our team will seek to reduce your tax liability as far as the legislation will allow, for example utilising foreign tax credit reliefs, or applying the automatic remittance basis where applicable.
How far back you need to declare depends on whether you have filed returns before or not, and a specialist disclosure adviser will guide you on how much you need to disclose to ensure you don’t offer HMRC more information than is required
Will I be charged penalties?
HMRC charge different rates of penalties depending on different factors, such as the behaviour behind the errors or omissions, whether the loss of tax is as a result of errors in a return or a ‘failure to notify’ HMRC that you had a liability to begin with, and whether your disclosure is ‘prompted’ (for example by a nudge letter) or ‘unprompted’. In offshore matters, the territory where the income / gains have arisen will also factor in. Applying appropriate penalties can be complex in itself due to the ‘Failure to Correct’ penalties that apply up to 2015/16. Our team of specialist advisers will help you mitigate penalties wherever possible as part of the disclosure process.
