Nudge letters sent to individuals who may have offshore assets have not given recipients enough time to react, according to tax advisers Blick Rothenberg.
The accountancy and tax advisory firm has been made aware of correspondence from HM Revenue and Customs arriving as late as mid-September, barely days ahead of a 200% penalty regime launching on 30 September.
Fiona Fernie, a tax dispute resolution partner at Blick Rothenberg, said: “The letters have been in a number of different formats, according to whether HMRC has specific information about offshore assets and what the source of that information is.
“However, the thrust of all the letters is the same – if taxpayers have undeclared offshore income and gains, which should have been reported for UK tax purposes, it is important that they make a disclosure before 30 September 2018 to avoid the possibility of draconian penalties being imposed under the Requirement to Correct (RTC) legislation.”
After September, RTC becomes Failure to Correct (FTC), with penalties as high as 200% of the underpaid tax and 10% of the value of the asset offshore, depending on the circumstances.
Too little too late
Fernie said: “HMRC has indicated that these letters are ‘designed to help’ taxpayers understand their obligations and avoid falling foul of the legislation that was introduced by Finance (No 2) Act 2017. Although there is also a leaflet issued by HMRC, it was only issued in August 2018 and has only been circulated week commencing 17 September – so, is it too little too late?
“While those of us in the profession are very familiar with the terms of the RTC legislation, to date there has not been a huge amount of widespread ‘advertising’ of the new legislation.”
In the dark
She added: “There are plenty of taxpayers who are still completely in the dark, which is very worrying since the legislation does not just affect those who have deliberately not disclosed offshore income and gains – it also catches those who have failed to disclose such sources completely innocently.
“This means that the ‘nudge letters’ and the leaflet may be insufficient to ensure that taxpayers review and make any amendments to their tax reporting prior to 30 September.”
Poorly timed nudge letters
“After all, many of the letters we are seeing have been issued at the height of the holiday period,” continued Fernie.
“By the time taxpayers returned from vacation and realised that they may have an issue, there may not have been enough time left to carry out the necessary review and make a disclosure to HMRC before the deadline.
“The Finance (No 2) Act 2017 received Royal Assent on 16 November 2017. Wouldn’t it have been more helpful if HMRC had started ‘nudging’ taxpayers then?”
Under pressure
HMRC is under pressure to raise revenue through tax investigations, forcing it to overstep the mark , say critics.
Grist to the mill is also expected to be added by a report looking into HMRC’s extensive new powers.
The UK tax authority is also being sued by law firm Mishcon de Reya for compromising an expat client’s data in what will be a vital test case impacting those with offshore tax affairs.
