What you need to know about HMRC overseas income and gains letters

HMRC’s campaign on tackling tax avoidance and evasion concerning offshore matters will continue as global information exchange systems get more sophisticated.

In brief

• Engaging with HMRC quickly is important but professional advice should be sought in the first instance.
• Careful consideration is required before signing the ‘Certificate of Tax Position’.

We continue to see an increasing number of enquiries from prospective clients receiving these letters — who previously may have been filing their own tax returns or were represented by another tax advisor — seemingly unaware that income and gains outside of the UK should have been, in most cases, reported on their UK self-assessment tax returns.

Most recently, HM Revenue & Customs (HMRC) has been sending these letters to individuals who are resident in the UK, with some form of financial connection to India. This would suggest that HMRC has been exchanging information with the Income Tax Department of India. In the enquiries that we have seen it was apparent that most individuals that received the letters had inadvertently not reported the interest arising on bank accounts held in Indian banks, which HMRC has now become aware of. 

What to do if you have received a letter?

In the first instance, as the letter suggests, taxpayers should review their past tax affairs and reporting with their current tax advisor, accountant, or lawyer.

Secondly, the letter encloses a ‘Certificate of tax position’, which is a formal declaration from the taxpayer to HMRC confirming that:

• Their tax affairs are in order and as such no corrective action is needed.
• A delinquency has been identified and their tax affairs therefore need to be brought up to date.
• Overseas income or gains have not been reported as they are covered by allowances and reliefs.
• Overseas income or gains have not been reported as they are not liable to UK tax. 

Whether the ‘Certificate of Tax Position’ should be signed requires careful consideration, bearing in mind that there is strictly no legal requirement but doing so increases the risk of making an accidental false declaration. For example; the letter does not reference a specific tax year to which the ‘offshore income or gains’ relate. Perhaps more confusingly, the second option under the heading ‘Your tax position’ states that ‘…I have declared all of my offshore income, assets, and gains’; but a self-assessment tax return only reports income and gains rather than details of specific assets. A response must, however, be submitted as otherwise HMRC may be prompted to raise an enquiry.

We can advise on how to respond to HMRC, regardless of whether:

• Nothing further needs to be declared
• A disclosure needs to be made

If a taxpayer realises that a disclosure is required, a decision needs to be made on which channel would be most appropriate given the specific circumstances.

The letter specifically states that ‘you must register with the Worldwide Disclosure Facility (WDF)’, however, there are various other disclosures channels available, so the WDF is not necessarily always the most appropriate. If you are concerned that your tax affairs may not be up to date, please contact a professional for a review of your position, following which you should be advised on the best course of action.