About your offshore income and gains … … …

HMRC are pretty good at grabbing people’s attention by using such headings in their letters to taxpayers.  Such letters are often effective because their “intelligence sources” are pretty accurate.  I have seen letters in the past where HMRC have even quoted bank account numbers from the outset just to demonstrate how much detail they had at the time.  All targeting offshore income and gains.

And then along came the Common Reporting Standard (CRS).

What is CRS?

CRS is the mechanism under which certain specific data is exchanged between countries on an annual basis.  CRS was approved by the OECD having been developed in response to the G20 request to share tax information and reduce tax non compliance around the world.

Arguably all quite meritable – except for the way the data is subsequently used.  A number of problems can occur.

Shared assets

Property and bank accounts are prime examples or where assets can be shared by more than one person.  You might think that a joint bank account between spouses for example is reported on a 50:50 basis.  Wrong.  The full data is reported on both individuals.  So where interest of say €10,000 has been earned in a year, problem #1 is that the data is reported as €10,000 for each taxpayer (as well as the account itself being reported as being joint).

But isn’t that double counting or at the very least misleading?

Problem #2 is it is reported in a calendar year not a UK tax year.

HMRC does not check the data it receives under CRS

Problem #3 is that HMRC does not go back to the originator of the data to check it before it writes a letter to a taxpayer.  If they did, perhaps problem #1 and #2 could be avoided.

Problem #4 – What exchange rates are used in the CRS data?

No idea, nor has HMRC.

So are these letters from HMRC valid?

No, and yes.

The letters are typically what are referred to as “nudge letters” in the profession.  As such have no authority or backing of (tax) law, so no, in that sense they are not valid.  But the fact a taxpayer has been written to will mean that HMRC will want to pursue an answer.  HMRC might do this by opening a formal investigation under s9a Taxes Management Act 1970 or claiming discovery under s29 Taxes Management Act 1970, in both cases HMRC will have the backing of tax law and so you might surmise that such the letter is “valid”.

What can be done?

Don’t ignore the letter!  Seek advice.

There may be a valid “work around” that answers HMRC’s concerns whilst avoiding the start of a formal investigation.

I am always happy to discuss your options.

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