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HM Revenue & Customs sent nearly a third more “nudge” letters to holders of overseas assets in the tax year to April compared with the previous year, as it revived a drive to crack down on tax avoidance.
After reducing its investigative activities during the Covid pandemic, the tax office sent 23,936 such letters relating to offshore matters in 2022-23, up 31 per cent on the 18,260 issued in 2021-22, a freedom of information request has revealed.
The FOI also disclosed that HMRC has stepped up its requests to foreign tax authorities about UK residents. It made 620 such requests in the 2022 calendar year — the most in five years — and has made 298 so far this year.
Andrew Park, partner at accountancy firm Price Bailey, who made the FOI, said the development came after “several years of declining compliance focus on this area”, which he warned may have “lulled taxpayers into a false sense of security”.
The tax authority notably paused compliance investigations for several months during 2020 in response to the Covid-19 pandemic.
“HMRC is clearly stepping up activity targeting taxpayers with undeclared income or gains,” Park said.
John Hood, partner at Moore Kingston Smith, another accountancy firm, also reported increased activity from HMRC on wealthier people with overseas assets.
“The spotlight is truly focused on resident non-doms,” he said. “We’re seeing more enquires on wealthy individuals. They’re definitely under the spotlight.”
Park added the resurgence in activity had come about because the tax agency was under pressure to “maximise tax revenues” and faced “huge pressure to raise their game on compliance generally”.
He argued this was partly due to criticism from MPs on the public accounts committee this year, which said HMRC was missing out on billions of pounds of tax revenue because of a “failure to better resource compliance”. HMRC also drew criticism last summer after admitting it had made no estimates on what proportion of foreign financial accounts by UK residents had been properly disclosed. The tax office has since promised to produce these estimates, though they have yet to be published.
The advisers warned anyone receiving letters from HMRC in relation to offshore matters to double check their affairs, as the letters are not generated randomly.
They are based on data the tax office has received through the sharing of information on financial accounts between tax authorities. This international exchange of data, developed by the OECD and known as the Common Reporting Standard, has been approved by 110 countries. Participants include historically popular tax havens such as Switzerland, Bermuda, the British Virgin Islands and the Cayman Islands.
HMRC uses algorithms to trawl data looking for anomalies between the offshore data it receives on UK residents and their UK tax returns — if indeed any have submitted. HMRC’s computers then generate “nudge letters” to the individuals concerned if any potential anomalies are detected, Park said.
However, he added, in his experience a lot of the time the nudge letters were sent to people who were tax compliant. Nevertheless, it remained important for people and their advisers to check no mistakes had been made.
Hood agreed, saying the receipt of a nudge letter “caused a great deal of stress and hassle for people . . . Often you’re having to prove a negative, that there is nothing wrong”.
HMRC said: “We have a strong track record in tackling offshore non-compliance. We have secured around £526mn from offshore initiatives since 2019, demonstrating our commitment to tackling all forms of non-compliance and ensuring everyone pays their share of tax.”
