HMRC don’t usually go in for dejavu but they do recycle good ideas or projects.
This time last year we started to see HMRC issuing ‘Certificates of Tax Position’ as part of project to elicit disclosure of previously undeclared offshore income and gains.
Yes, you’ve got it right it’s back.
2020 – Project Offshore
The letters are more direct than previous variants, they are now titled “Your offshore assets, income or gains”. There’s not much room there for possible, perhaps or maybe. As far as HMRC are concerned, those assets, income or gains exist.
The letters are being despatched by HMRC’s Risk and Intelligence Service, Offshore, a special project team within Individuals and Small Business Compliance (ISBC).
Is receipt of such a letter a ‘fishing exercise’ by HMRC or it is based on real information? Is it something to be concerned about? Probably “Yes”.
The letters result from information shared by overseas banks and financial intuitions that have provided details to HMRC via the Common Reporting Standard (CRS).
Since its adoption in 2014, this has expanded so that now most countries worldwide automatically share significant details of offshore data with HMRC.
The invidious position is that the taxpayer is given a deadline to sign a “Certificate of Tax Position”, without knowing what information HMRC actually have or whether it is correct.
What are the options?
The declaration reflects two options:
- I need to bring my tax affairs up to date. I will declare all my UK tax irregularities using HMRC’s Worldwide Disclosure Facility (WDF).
- My tax affairs do not need updating. I do not have any additional tax to pay and I have declared all of my offshore income, assets and gains.
Options 2 is straightforward but serious. The Declaration clearly states “I understand that choosing to make a false statement or complete a false certificate is a criminal offence that can result in an investigation and prosecution.”
How can a taxpayer commit to Option 2 without knowing what information HMRC hold?
Option 1 is more complicated. It is a signal that tax irregularities exist. If these are not swiftly addressed then HMRC are bound to investigate.
Adopting an ostrich posture and ignoring the letter may buy a little time but will inevitably invite scrutiny.
The letters carry a reference in the format /CFSS-NNNNNNN, where N is a number. The reference is a case reference so it’s on a list.
It is a tried and tested HMRC technique to deal with those that respond positively first, then deal with those that appear to be lying and subsequently turn to those who have not responded. The consequence of prevarication is greater cost as HMRC take the view, “You had your chance to be pro-active, you didn’t take it.”. Penalties are higher if HMRC ask the question first.
There are many issues that go with receiving such a letter. The simple formulation may tempt the unwary or uninformed into an answer that they think will simply get rid of it – but will actually come back and bite them.
As well as the potential that a criminal investigation may commence, a reckless statement is likely to result in a higher penalty if the response was not completely accurate.
Help is at hand
Anyone receiving a Certificate of Tax Position letter should remember that HMRC has information which it believes reflects tax inaccuracies.
The information is likely to be correct but even if it is not, HMRC will believe it is. Expert assistance should be sought to resolve the position.
Any tax inaccuracy will need to be addressed and preferably pro-actively with HMRC to agree matters in a way that avoids criminal action, and limits so far as possible the tax, interest and penalties involved.
The HMRC solution is one dimensional – WDF fits all. It does not.
Other options are available such as the Contractual Disclosure Facility (CDF), Let Property Campaign (LPC) and other traditional routes to resolve matters with HMRC.
The resolution option depends on what the potential overseas matter is, are there any other matters and the taxpayers particular circumstances.
You should always seek professional advice before responding to HMRC Certificate of tax position requests.
Get in touch with our expert team for help and advice with any type of HMRC information request.