HMRC issues 'nudge' letters to non-doms for suspected unpaid tax

HMRC is targeting wealthy UK tax residents claiming a non-UK domicile who may not have paid the remittance basis charge. HMRC has issued hundreds of 'nudge' letters to taxpayers encouraging them to reconsider their tax position.

Remittance basis charge

Individuals who are resident but not domiciled in the UK have the opportunity to pay UK income tax only on income earned in or remitted to the UK (rather than on their worldwide income, as would otherwise be the case). The ability to access this 'remittance basis' taxation is subject, in the case of longer-term residents (those resident in the UK for at least 7 out of the previous 9, or 12 out of the previous 14 tax years, under section 809B of the Income Tax Act 2007), to payment of a 'remittance basis charge' of either £30,000 or £60,000, depending on the individual's personal circumstances.

Nudge letters

HMRC has in recent years adopted a strategy of sending targeted communications to taxpayers whose tax affairs it suspects may not fully be in order. Recipients have ranged from multinational organisations (where the tax in question was the diverted profits tax) to individuals suspected of having undisclosed offshore income or capital gains. The nudge letters offer the recipients an opportunity to engage with HMRC to remedy the suspected defect outside the normal enquiry process.

HMRC's latest nudge letters

HMRC's latest nudge letters offer the recipients the chance to amend their 2019/20 tax returns to include the relevant remittance basis charge (or, alternatively, to opt to be taxed on the 'arising basis', under which worldwide income and gains are subject to tax in the UK). HMRC impose a deadline of 60 days from receipt of the letter for action to be taken; the implicit threat being that if taxpayers do not contact them, further steps will be taken (most obviously, HMRC can open a civil or criminal enquiry).

In our experience, HMRC nudge letters are not simply a 'fishing expedition' – HMRC tend to send them when they have grounds to suspect that a person's tax affairs may not be in order. While HMRC can and do make mistakes, ignoring a nudge letter is not a sensible strategy to adopt – rarely do HMRC simply 'go away'!

If HMRC have made an error, it should be possible to correct it by prompt and substantive engagement with them.

Equally, if it emerges that corrective action is required on the part of the taxpayer (e.g. a tax return needs to be amended), open and early communication with HMRC should minimise the risk of HMRC imposing civil or criminal sanctions.

Further action

If you have received a nudge letter (either in relation to the remittance basis charge or in relation to any other topic) and would like advice, please contact Adam Craggs or Harry Smith.