How to navigate HMRC nudge letters for offshore income earners

8 min read

Countless UK-based service providers with offshore income have found themselves receiving HMRC nudge letters. These are part of a tranche sent out on 5th June 2023 by HMRC, targeting taxpayers that the taxman believes to be in possession of offshore income or gains to report.
In the wake of the Pandora Papers, these HMRC nudge letters are sent to those who HMRC believes may have inconsistencies in their UK tax affairs. If you are wondering, “what is a nudge letter?,” it serves as an initial request to recheck tax data in advance of more formal enquiries.

Anyone who has received one of these HMRC nudge letters must disclose their taxes within 90 days, failing which they could potentially be subjected to an HMRC investigation.

Background to the HMRC nudge letters

The International Consortium of Investigative Journalists released over 11 million records from 14 offshore providers between 2021 and 2022. These records, dubbed the Pandora Papers, contained details of previously concealed owners of assets like offshore accounts and companies. 
HMRC has begun investigating these papers and acquiring additional details from sources like Common Reporting Standard (CRS) reports. Under CRS rules, tax authorities have to get information from their financial institutions on accounts held by non-residents and then exchange those details with the jurisdiction where the non-resident lives.

Deliberate vs. non-deliberate discrepancies

For most non-deliberate tax errors, the Worldwide Disclosure Facility will come into play, allowing UK taxpayers to voluntarily disclose all tax, penalties and interest due on offshore income/gain. You can complete this within 90 days of registering online for the facility.
If the taxpayer’s errors were deliberate, or if they knowingly failed to submit their returns, typically, CoP9 will come into play. This comes under the Contractual Disclosure Facility.
Essentially, it means that HMRC will sign a contract agreeing not to start criminal tax investigations provided the taxpayer submits a complete disclosure of all their tax discrepancies and omissions.
It is the surest way to avoid criminal proceedings if you have made a deliberate mistake. It is also relevant to note that HMRC could ask for revised submissions going back multiple tax years, not just the current one.

The number of years is typically higher in the case of deliberate errors than if the errors were non-deliberate.

So, you may be thinking, “I have received a letter from HMRC, what do I do now?”

First and foremost, do not ignore any nudge letter you have received from HMRC. Doing so only increases your chances of a formal investigation against you, and you will end up spending a lot more time and money on the process.
In almost all cases, HMRC gives you a time limit within which to re-submit your tax assessment, so you will have a chance to avoid any big fines or criminal proceedings. And remember – just because you have received an HMRC tax notification letter, it does not necessarily mean you are in trouble.
There could be several legitimate reasons why a UK service provider might have set up a non-UK entity, and if so, you just need to respond with a relevant explanation and records. Your accountant will help you with this.
In case you choose not to make a disclosure in response to the nudge letter, the HMRC will almost certainly begin making enquiries. In this case, you risk:
  • Higher penalties
  • Uncertainty about the enquiry process
  • Attracting HMRC attention to other parts of your tax affairs (even if there aren’t any issues)
  • In the worst cases, criminal proceedings
Basically, HMRC may assume that you are not being cooperative or trying to evade tax; therefore, they may proceed with more aggressive steps, such as launching a formal investigation or imposing penalties.
It could also lead to uncertainty about the enquiry process and draw further attention to your tax affairs, potentially complicating matters and causing additional problems down the line.
Therefore, for this reason, we very much recommend avoiding the “wait and see” approach, which is a term often used to refer to a course of action where an individual or organisation chooses not to respond immediately to a situation but instead decides to monitor the situation to see how it evolves before deciding on the next steps.
How Golding Accountancy can help
Dealing with offshore income/gain tax treatments can be quite complicated. Regardless of how or why there were discrepancies, we strongly advise consulting with a professional when redoing your taxes.
As long-time experts in dealing with HMRC and laws related to offshore business, Golding Accountancy can help you re-file in a fashion that minimises any penalties and avoids any criminal investigations as far as possible. Among the services that you can expect from a leading accounting agency include:
  • Conducting a full review of your onshore and offshore tax dealings to identify any areas that need attention
  • Preparing and submitting a disclosure to HMRC that offers maximum protection against fines and penalties
  • Asking HMRC for details of why penalties were imposed, including the underlying behaviour (deliberate versus non-deliberate)
  • Deliver a letter of representation to HMRC (if relevant) to explain your circumstances and speed your disclosure case along
  • Handling all paperwork and extra requests for information (if any)
  • If applicable, pushing for a lower penalty or arguing for the suspension of a penalty
  • Negotiating a payment timeline that suits what you can afford
We have a wealth of experience assisting UK-based service providers with offshore income streams. We are fully equipped to manage all issues about HMRC nudge letters, irrespective of their complexity.
We would be delighted to extend our services as your dedicated accountant if desired. Please feel free to get in touch with us at your earliest convenience!
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