After temporarily pausing tax investigations as COVID-19 business support measures rolled out earlier this year, HMRC has restarted probes into businesses and individuals’ tax affairs, with a focus on overseas income and gains, and undeclared UK rental income.
In August, we saw increased “nudge letters” sent to UK residents with potential tax liabilities on overseas income or gains, prompting them to make a disclosure under the Worldwide Disclosure Facility (WDF).
Attached to the letters is a ‘Certificate of Tax Position’. This instructs individuals to sign a statement stating that either their tax affairs need to be brought up to date through the Worldwide Disclosure Facility (WDF), or they have correctly declared all their worldwide income and gains.
It is understood this latest wave of letters follow the receipt of financial information under the Common Reporting Standard (CRS). The CRS is an international agreement involving the UK and over 100 countries including India and Hong Kong. It allows for the exchange of information between jurisdictions about financial accounts and investments to help stop tax evasion.
The WDF, launched in 2016, allows those with undisclosed offshore money, gains, investments or assets to settle and regularise their tax affairs with HMRC, but unlike previous disclosure arrangements, no longer offers any favourable terms or lower penalties.
WDF disclosure after 1 October 2018 are subject to the Requirement to Correct (RTC) sanctions which sets out minimum penalties to reflect HMRC’s toughening approach.
FTC penalties for a “prompted” disclosure is generally 200% of the unpaid tax, but can be negotiated down to 150% depending on the quality and accuracy of the disclosure. “Unprompted” disclosures can be reduced down to 100%, again depending on the quality and accuracy of the disclosure.
FTC will not necessarily apply to all years and there are complex rules for determining how many years may be assessed and the rates of penalty chargeable.
Moreover, HMRC have confirmed an inaccurate or incorrect disclosure may lead to a civil intervention or criminal prosecution. It is therefore important to appoint a qualified professional with the relevant experience in dealing with such cases. Jeffreys Henry LLP has significant experience in dealing with HMRC investigations and disclosures, including the current WDF (opened on 5 September 2016) and previous the Liechtenstein Disclosure Facility (closed in 31 December 2015).
The WDF will not be appropriate in every case and in more serious cases an alternative approach may need to be adopted.
Regardless of whether a disclosure is required or not, the consequence of making an incorrect Certificate of Tax Position declaration could be severe.
The Let Property Campaign encourages landlords with undisclosed rental income to come forward and regularise their tax affairs on favourable terms. Lower penalties and affordable payment plans can often be negotiated with the correct professional advice.
No specific deadline has yet been announced to make a disclosure under the Let Property Campaign. Similar tax disclosure facilities such as the Liechtenstein Disclosure Facility have come to an abrupt end. HMRC then uses the information they hold to target those who should have made a disclosure but failed to do so, but with significantly higher penalties.
HMRC gather information on landlords from many different sources, the most common ones being:
HMRC are actively targeting landlords who they know have undeclared rental income with a ‘prompted’ Let Property Campaign letter.
In a copy of a letter as seen by Jeffreys Henry LLP, HMRC states: “HMRC has data related to landlords and is comparing this with what individuals have or have not told us. This letter is the first stage following that process as HMRC is aware you are a landlord who is letting property and that you may be liable to tax on that income.”
The rate of penalties for not declaring rental income will vary depending on your individual circumstances and whether you made an ‘unprompted’ or a ‘prompted’ disclosure. Interest will be charged from the date the tax is due till the date it is actually paid. Incorrect or incomplete disclosures may also attract higher penalties.
In research carried out by Jeffreys Henry LLP, as of 13 May 2020, 58,754 Let Property Campaign disclosures have been made to HMRC. This has led to a yield of total of £220,792,527. The penalties alone came to a total of £26,468,109.