HMRC exchanges financial data with many countries around the world about individuals’ bank accounts and assets. Where it can match data to a UK taxpayer it will write to that individual saying it has information concerning their overseas income or gains, which is taxable in the UK.
If our client receives such a letter, we should also receive a copy, but that doesn’t always happen. HMRC is careful not to accuse the taxpayer of tax evasion, but it does ask the recipient to check that all overseas income and gains have been correctly declared.
Unfortunately checking what may be missing from tax returns is a guessing game. HMRC won’t tell you what information it has, or even what tax years it applies to, although most information exchange agreements started to apply from 30 June 2014 or a later date. The data HMRC has may not tie up to UK tax returns because it has been complied on a calendar year basis, and not to the UK tax year.
If our client is, or was, not UK domiciled, the overseas income or gains may not be taxable in the UK, and thus doesn’t have to be declared in the UK. HMRC won’t necessarily know the taxpayer’s domicile.
HMRC asks for a response to its letter within 30 days and encloses a “certificate of tax position” to be completed and returned. There is no legal requirement for our client to complete that certificate, but if HMRC doesn’t receive a relatively prompt response in some form it will follow-up and possibly open a tax enquiry.
Clients should be carefully advised about whether to complete the certificate of tax position, as it applies to all years without limit, and there is no de-minimis level of declaration. There are serious consequences of making a false declaration.
Where a disclosure is required of overseas income or gains, consider using the Worldwide Disclosure Facility (WDF), but other methods of disclosure may be more appropriate. If you should need any further advice please contact our office.
Written by the Tax Advice Network