HMRC is set to increase the use of what are referred to as ‘nudge letters’ in an effort to crack down on offshore tax evasion.
The letters are more formally known as ‘certificates of tax proposition’ and they’re designed to inquire of people with offshore financial interests whether their income and assets are being properly declared and taxed as they should be.
According to the law firm Pinsent Masons, more and more British taxpayers are finding themselves in receipt of nudge notices, with HMRC generally having received information about overseas financial interests from other countries in line with the terms of the Common Reporting Standard (CRS).
The CRS is a reciprocal agreement that essentially means around 100 countries all share information about money being held in different parts of the world.
For HMRC, the expectation is that by directly contacting individual taxpayers in relation to their overseas assets, they will be prompted to make sure their tax affairs are in order, if they haven’t already done so, before there’s any need for formal investigations.
Specifically, the tax authority wants to make sure that as few people as possible can evade or underpay taxes by having financial assets held overseas or in offshore locations.
“Anyone who could possibly fall into one of the categories is getting one [a nudge letter],” Josie Hill from Pinsent Masons told Accountancy Age recently.
That might well include people whose information has already been submitted properly and in full to HMRC, Ms Hill said.
Tax agencies and advisors will, in some cases, receive copies of the nudge letters sent to individual taxpayers by HMRC regarding their offshore financial holdings, Pinsent Masons has said.
However, Ms Hill, as a legal expert, has made clear that while there is always a need for accountants and tax advisers to carry out due diligence before filing their clients’ tax returns, ultimately the responsibility for making sure the information is entirely accurate falls on the taxpayer themselves.
“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,” Ms Hill is quoted as saying.