HM Revenue & Customs (HMRC) have significantly increased their attention to holders of assets abroad, according to the FT. They’ve been sending out many more “nudge” letters, little reminders, suggesting people double-check their tax situations.
During the recent tax year that ended in April, HMRC sent out 23,936 of these letters, specifically about overseas matters. That’s a big jump – 31% more than the 18,260 letters they sent the previous year. This significant rise in attention on offshore assets follows a period of reduced activity during the Covid pandemic.
HMRC and Its Overseas Collaborations
An interesting fact that came to light is that HMRC isn’t just working independently. They’re actively reaching out to tax authorities in other countries. How active, you ask? They made 620 such international requests in 2022 alone, the highest they’ve done in five years. And they’re continuing this trend with 298 requests already in the current year.
This increased activity isn’t random. Andrew Park from the accountancy firm Price Bailey pointed out that HMRC had been a bit laid back about this in the past few years. This might’ve given some taxpayers a false feeling of safety, thinking they weren’t under scrutiny.
Another expert, John Hood from Moore Kingston Smith, added that HMRC is now especially interested in those wealthier individuals who have significant assets overseas.
Why the Sudden Push from HMRC?
You might wonder why HMRC is suddenly all geared up about this. Park believes the tax agency is feeling the pressure to get as much tax as possible. This need has been amplified by criticism from MPs on the public accounts committee, who believe HMRC has missed out on collecting billions. Last summer, the tax office faced more flak for not having clear estimates on UK residents’ foreign accounts’ disclosures.
This doesn’t mean everyone getting a letter has done something wrong. These letters are based on shared international data, and sometimes discrepancies arise due to computer algorithms, which might not always get it right. If you or someone you know gets such a letter, it’s a good idea to double-check your records. Not just because of any potential oversight on your part, but to ensure that the tax office hasn’t made an error either.
The International Effort to Track Financial Data
It’s worth noting that this isn’t just a UK effort. An international data sharing system, called the Common Reporting Standard, has been developed by the OECD. This has been approved by 110 countries, including places known historically as tax havens. These countries now share information to ensure that taxes are paid correctly.
HMRC, with its computer systems, checks this offshore data against what they have on UK residents. If things don’t match up, they send out these “nudge letters”.
However, Park emphasises that often these letters go out to people who are fully compliant with their taxes. This makes it all the more crucial to ensure no errors have cropped up in their process.
Hood agrees, mentioning that getting such a letter can be a cause of stress for many. Imagine having to prove you didn’t do something wrong!
HMRC’s Assurance
Despite the confusion these letters can cause, HMRC stands by their efforts, stating they’ve been successful in tackling offshore non-compliance. Since 2019, they’ve secured around £526 million from these initiatives. This, they believe, shows their dedication to ensuring everyone pays their fair share.