HMRC nudge letters are sent for multiple reasons. Recently, HMRC’s Risk and Intelligence Service, Offshore, have been busy.
Previously, HMRC have issued letters to individuals seeking ‘to check their tax positions’ without launching an enquiry.
Now it’s offshore landlords and their tenants that are being targeted. Letters have been sent out giving the recipients a nudge, seeking further information … and tax!
What do the “nudge letters” say?
HMRC can get things wrong but they need to engage in a dialogue first to find that out.
The style of the letters anticipate HMRC having to use their formal information powers under Schedule 36 Finance Act 2008. Page 2 of the letter refers to “documents and information that we need” so that the text can be copied and pasted straight into a formal request.
A Schedule 36 Notice can be served on anybody or any entity. Scary stuff for the uninitiated.
Why are the letters scary?
The letters state that if you are an occupier or tenant and you pay your rent to an offshore landlord, you may have to deduct tax from the rent before paying the net amount to the landlord.
Any tax then has to be paid by the occupier or tenant to HMRC. HMRC ask for the date that the property was first occupied and the amount of rent due monthly or quarterly.
If you’re the landlord, the letter refers to non-resident tax returns, the Annual Tax on Enveloped Dwellings (ATED) regime and the need to be registered with HMRC under the Non Resident Landlord Scheme.
What sort of mistakes do HMRC make?
Many and varied. And a lot of the time!
They can assume that rent is being paid when its not. They can assume that the landlord is an offshore company and its not. They can assume that tax is due and it is not. In short, HMRC imagine the rent is being paid into an account and no tax is being paid.
But living in rent free accommodation can cause another tax problem. The company may be using a trading name, not its company name. An offshore company may be paying the correct amount of tax but in another tax jurisdiction.
What if there is something amiss?
Sort it and quickly.
It goes without saying that any tax that is due has to be paid. Interest is chargeable on a daily basis. Significant penalties can also be levied.
HMRC can block the sale of any UK property and obstruct the liquidation of any company trying to evade paying up.
The Mutual Assistance in Recovery Directive enables HMRC to ask another tax authority in another tax jurisdiction to collect a debt on its behalf.
Ignore these letters at your peril.
You should always seek professional advice before answering HMRC nudge letters.
Get in touch with our expert team for help and advice with any type of HMRC information request.