Rarely is anything from HMRC good news. HMRC communication could mean a number of different things.
It may be a coding notice, it may be a notice to file a tax return or it may be a letter inviting the recipient to make a disclosure under the Contractual Disclosure Facility (CDF).
The latter option is definitely not good news so what do you do?
Option 1 – do nothing
Ignoring the letter and adopting an ostrich posture is not a wise strategy.
The issuance of a CDF letter is a signal to the recipient that HMRC possesses information and believes the recipient has committed suspected serious tax fraud.
Whilst HMRC can, on occasion, be wrong, it is rare there is nothing amiss.
It is serious as HMRC is able to prosecute matters where it considers tax fraud has taken place.
Head in the sand is not a sensible response.
Option 2 – do something
Seek expert advice.
The reason for the communication may be completely unknown to the recipient, alternatively it may be readily identifiable why.
The key is constructive engagement with HMRC as it is possible some of their concerns may become apparent.
Opening a dialogue with HMRC
It is good to talk, but in the first instance this should be with the adviser.
An ill guarded comment to HMRC, even at an early stage, can result in avoidable requests and expectations as matters progress.
Ignoring the communication is not wise generally, but it can also be costly in terms of penalties. Yes, a financial penalty is determined at the end of the process when matters have been disclosed and taxation evaluated. However, the level of penalty can be determined by behaviour at the outset. Put simply: ignore HMRC and it will cost more.
What do they have?
HMRC’s communication will be based on weeks, if not months, of piecing together information it has available to evaluate whether it considers there to be a material tax deficiency. That information could originate from:
- Bank transaction reports
- Land Registry or Stamp Duty returns
- Credit card providers
- Court reports
- “Well wishers”
The above is not exhaustive and often HMRC commence scrutiny of a taxpayer based on information obtained when examining another taxpayer; spin-off investigations as they are commonly known.
The OECD brokered Common Reporting Standard (CRS) has merely increased the volume of data HMRC now routinely receives, from a Global, not just a UK, perspective.
Spanish property with a Spanish bank account to pay the running costs, likelihood is HMRC will know about it. It’s just a matter of time before they ask the questions.
So what should you do next?
If you receive the brown envelope with an unwelcome letter, seek expert advice.
That starts a clock to address the perceived issues. Constructive engagement can moderate the pace of the clock. Ignoring it will result in costs, disruption and HMRC becoming a difficult feature in the taxpayers life that will be more challenging to get rid of.