Has HMRC failed to help taxpayers comply with the requirement to correct legislation?

Last Updated on: 22nd November 2023, 03:08 pm

Over the last few weeks HMRC has been sending so called ‘nudge letters’ to taxpayers who are believed to have offshore assets which may give rise to income and gains attracting UK tax, but have HMRC given people enough time to respond, say leading accounting, tax and advisory firm Blick Rothenberg.

Fiona Fernie, a dispute resolution partner at the firm 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.”

These Failure to Correct (FTC) penalties could amount to more than 200% of the underpaid tax and 10% of the value of the asset offshore depending on the circumstances, which could be a very large amount of money.

Fiona said: “HMRC has indicated that these letters are ‘designed to help’ taxpayers understand their obligations and avoid falling foul of the legislation which 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 this week – so is it too little too late?”

She added: “Whilst 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 wide-spread ‘advertising’ of the new legislation. 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. After all, many of the letters we are seeing have been issued in recent weeks – at the height of the holiday period. By the time taxpayers return from vacation and realise that they may have an issue, there may not be enough time left to carry out the necessary review and make a disclosure to HMRC before the deadline.”

Fiona said: “The Finance No2 Act 2017 received Royal Assent on 16 November 2017. Wouldn’t it have been more helpful if HMRC had started ‘nudging’ taxpayers then?”

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