The UK tax authorities have doubled down on a campaign against taxpayers with undeclared foreign income, brushing aside criticism from accountants questioning the government’s tough tactics.
Thousands of taxpayers have received letters in the past month urging them to review their foreign assets and bank accounts, warning that false declarations could result in criminal prosecutions.
The letters follow similar ones dispatched a year ago mostly to different taxpayers in a concerted drive by HM Revenue & Customs. With the public finances under pressure and the economic outlook uncertain, HMRC is seeking to close Britain’s yawning tax gap, which it puts at 5.7 per cent of gross domestic product, or about $150bn.
While the total includes tax lost in many ways, for example through undisclosed cash in the building trade, officials are taking advantage of a tightening in international regulation to focus on undisclosed foreign income.
HMRC is increasingly using data exchanged by around 100 tax authorities under the Common Reporting Standard, a 2014 OECD agreement to help offshore tax probes.
The HMRC letter, seen by the Financial Times, said: “We have information that shows you have an interest in overseas property or received overseas income or gains that you may have to pay UK tax on. We have received this information through the UK’s tax information exchange agreements with other countries.” The letter asks the recipient to respond quickly — a letter dated February 24 sets a deadline of March 25.
In an annual report from May 2019, called No Safe Havens, HMRC said that since 2010 it had raised more than £2.9bn by tackling offshore tax non-compliance, individual and corporate.
Tax accountants support HMRC’s right to use CRS information and probe taxpayers. But some question its tactics in sending warning letters in what they see as an indiscriminate way. Nimesh Shah, a partner at accountants Blick Rothenberg, said that HMRC seemed to be writing to taxpayers whose names appeared on CRS lists without first checking whether they had already made the relevant disclosures in regular UK tax returns.
“What’s surprising is that they get data on a taxpayer but don’t cross-check with tax returns,” he said. “It is a really heavy approach.”
Mr Shah said that at his firm 99 per cent of the clients who received these letters last year had nothing more to disclose. Two other tax accountants said they too had found few cases where extra disclosures had been required.
HMRC denied the suggestion that the letters were being dispatched without proper checks on an individual’s position, including their tax returns. “We do not send our letters speculatively,” it said. “All of our work is insight and data-driven, and so if customers have received a letter, our data will have indicated that they have offshore assets or income which does not appear to have been declared. We do check their tax position as part of this body of work.”
Tax accountants are particularly concerned that recipients are being asked to sign an enclosed “certificate of tax position” in which they declare either that they have already made a full declaration, or that they will declare their “UK tax irregularities”. It warns that making a false statement “is a criminal offence”.
Tax accountants say the certificate has no basis in law, even if it is written in a legalistic way. Dawn Register, a tax partner at BDO, said: “There is no legal obligation to reply. But I would not advise anybody to ignore it.”
Ms Register cited a note from the Chartered Institute of Taxation, the tax accountants’ professional body, which said last year that individuals should think “very carefully” about signing the certificate given the “serious consequences” of making a false declaration. The institute recommended replying to HMRC by letter without using the certificate.
The CRS records give officials huge amounts of new information — in 2018, the last year for which figures are available, HMRC received data relating to 5.67m accounts, up from 1.63m in 2017. The department said: “This is a business as usual ongoing campaign, so there [are] likely to be more letters next year.”
