HMRC has sent you a nudge…

Over the last few months, the government has been furiously galvanising HMRC’s iron fist. 

Now, we know what you’re thinking. What on earth is galvanising?

Among other things, it’s the method of adding a hard, protective layer to iron products to make them stronger. 

Why are we talking about it in relation to HMRC? Well, we’ll tell you. During this year’s budget, Chancellor Rishi Sunak announced that the Treasury would be raising £4.7 billion by combating tax evasion and avoidance. 

And now with the massive added expense of COVID-19 support, the UK government is cracking down – and it’s taking no prisoners.

What’s the story?

The bid to crack down on tax evasion began with HMRC’s Requirement to Correct (RTC) campaign. It demanded that taxpayers with overseas assets were obligated to correct any historic issues in their tax position. They had to do this by 30th September 2018.

But it didn’t end there. After 2018, HMRC suspected that many still had not adhered to their RTC campaign. As a result, they enforced the Failure to Correct (FTC) regime.

Under FTC, taxpayers can be charged a penalty of:

• Between 100% – 200% of their uncorrected taxes
• 10% of the value of their relevant assets
• Additional penalties is HMRC find that the assets were moved to avoid tax

And as part of the much discussed Finance Bill 2020/21, a new measure has been put in place:

• Financial institution notices (Fin)

What is a Financial institution notice (Fin)?

A financial institution notice is a new power that HMRC can use to collect your taxpayer information. 

HMRC can now request your information from banks (and other financial institutions) who will be legally obligated to provide it. And, to prove they’re not messing around, they will potentially also be able to issue these notices to financial institutions outside the UK. This, however, will of course rely on local laws and existing tax treaties.

Why bother, you ask?

The hope is that they can speed up the process of gathering information about taxpayers, especially those who hold money overseas. 

Do I need to panic?

You’ll generally be notified if HMRC send out a Fin, and they should explain why they‘ve asked for it as well. But they won’t have to. If they think that notifying you might prejudice the assessment of your taxes, a Fin can be requested without your knowledge. Eek!

That said, if you’re not doing anything wrong – and certainly not intentionally – there’s absolutely no need to panic. Just (calmly) comply with HMRC if they contact you. And if your taxes are organised and up-to-date, everything will be fine.

And what the heck are nudge letters?

HMRC has previously been known to send out what’s known as “nudge letters” in the hopes of making you act in a certain way. This time around, it’s to those it suspects have undeclared offshore assets. 

The letter goes something like this:

We have information that shows you may have received overseas income or gains that you may have to pay UK tax on. We have received this information through the UK’s tax information exchange agreements with other countries. 

We want to help make sure you are paying the right UK tax on your overseas income and gains. We have compared the information we have received with your tax record and tax return(s). We believe that you may not have paid the right amount of UK tax. There may be a reasonable explanation for this. 

We are giving you the opportunity to review your tax affairs and to tell us about anything that you may need to put right. Some people with assets overseas have found that earlier tax advice is out of date after changes to their personal circumstances or to tax laws. 

Please help us to make sure the information we hold about your tax affairs is accurate. You can do this by checking that you have told us about all of your UK tax liabilities from all overseas income or gains. 

The letters also contain certificates to be signed that confirm that your tax affairs are up-to-date, or that you’re in the process of bringing them up-to-date.

HMRC have been criticised for sending these letters before. This is because “they do not make clear that there is no legal obligation to complete the certificate.” But whilst this is true, it’s best not to ignore it.

As we said earlier, if your affairs are in order, you shouldn’t have an issue. 

Got a nudge letter?

If you get a nudge letter about your foreign income, the best thing to do is to seek advice from your accountant. You should do this ahead of compiling any documents for HMRC. Their findings can go back as far as 20 years, so professional help is essential. 

Also, if you get this bit wrong, you can end up facing criminal proceedings! So it’s much better to be safe than sorry.

That said, this is still not necessarily a reason to panic. If HMRC contact you with a nudge letter, it doesn’t mean that they’ve found something wrong. They may just want to know where the income comes from, or there may be a mismatch of numbers that they want to clarify.

You can even try to get in contact with them to respond instead of completing the certificate. Do this if there’s a simple explanation for the discrepancy.

The only thing not to do is to ignore it. As we said earlier, the government has a huge debt to pay so the more you avoid HMRC, the more suspicious you will appear, and the more severe the consequences could be.