Offshore corporates in HMRC’s sights

Last month marked the tragic passing of the torch, where Her Majesty’s Revenue & Customs, becomes His Majesty’s. Despite the sombre circumstances, HMRC have not taken much time to grieve and as a result, offshore companies that own UK property will now be the target of a new ‘nudge letter campaign’ to tackle non-compliance. 

What exactly are nudge letters? 

Nudge letters are part of HMRC’s ongoing ‘upstream compliance’ effort; a method by which they encourage taxpayers to proactively correct their affairs without the need for direct HMRC intervention. 

These nudge letters are widely targeted at individuals or businesses based on information received, primarily from overseas tax authorities through the Common Reporting Standard. The format of each letter is slightly different, but the common themes found in all nudge letters are a statement that HMRC has received relevant information, it will suggest the taxpayer reviews their tax position, and it will always include a suspiciously simple certificate of tax position to be completed and returned. 

What are these letters targeting? 

HMRC has told the Chartered Institute of Taxation (CIOT) that this campaign has followed a review of data which has identified non-UK resident corporate owners of UK property that “may not have met certain UK tax obligations”. As a result of this review, it is intending to send one of the following two letters to taxpayers they believe may not have fully complied with their obligations. 

The first of the two letters will be sent to non-UK resident companies that own UK property and HMRC believe have failed to disclose income received as a corporate landlord, or a liability to annual tax on enveloped dwellings (ATED). 

The other letter will be issued to non-UK resident companies that have made a disposal of a UK residential property between 6 April 2015 and 5 April 2019 without filing a CGT return. 

What should I do if I receive a nudge letter? 

In the immortal words of ‘The Hitchhikers Guide to the Galaxy’, “don’t panic!”.

HMRC’s nudge letters are sent out far and wide, in a very scatter gun approach. There is a good chance that you may not have anything to respond with and even if you do, it may not be as worrying as you think. Often there is a simple explanation or nothing leading to any additional tax to pay. Many taxpayers may simply have forgotten something when completing their return. 

Before responding in any format, it is important to undertake a full review of your tax position to identify if any disclosure is required and to plan any approach to HMRC. A response will be needed if you have something to disclose, as ignoring the letter may lead to investigation and potentially criminal prosecution. 

Expert advice is always recommended when dealing with any type of HMRC intervention. To fully support you, Kreston Reeves has a dedicated team of Tax Disputes and Risk Management specialists who have significant experience in handling precisely this type of HMRC intervention.  If you would like to discuss, please get in touch.