In March 2021, another round of nudge letters have been issued. This time they are following up on the information they have been supplied under the Common Reporting Standard (CRS). Other than saying “we have information … … …”, HMRC don’t tell you what they know or rather suspect. Yes HMRC has information on overseas assets – but is simple ownership leading to a tax liability?
What is CRS?
CRS is an automatic, annual reporting mechanism between different countries around the world. Approximately 137 countries are committed to CRS leaving very few that aren’t. The world has become very small.
Under CRS, the following information is exchanged with HMRC (as a minimum):
- Country (countries) of tax residency
- Tax Identification Number
- Date and place of birth
- Account number
- Account balance
- Certain payments into the account
As you can see, all basic questions but they are questions that can provoke further questions. For example, if there is a overseas bank account, when was it opened? How has it been funded? etc. etc.
What does HMRC do with this information?
This information is matched to what is already known by HMRC by using their CONNECT software. Anything new or contradictory is flagged for a more detailed investigation later by a officer of HMRC.
Not surprisingly, there can be a lot of mismatches simply because of the UK tax year ending on 5 April and CRS ending on 31 December.
So what, you might say?
Exactly. Owning overseas assets is not a crime. But that won’t stop HMRC asking questions, such as:
- How was the asset purchased?
- When was the asset purchased
- Has all the income that has funded the purchase been declared and taxed?
- Has any income being declared and taxed in the overseas jurisdiction?
- Is the income also reportable and taxable in the UK?
Often these questions are asked by HMRC via a “nudge letter“.
How can I avoid this situation?
For any taxpayer needing to complete a Tax Return, all overseas income and gains need to be reported to HMRC. If there is no income or gains, careful thought may be given to making a note on the Tax Return in the “white space”.
If there is undeclared income and/or gains, careful thought should be given to making a Disclosure to HMRC.
The last thing you might want to do is to ignore the problem as it is unlikely to go away. Rather HMRC might consider that they have identified some undeclared overseas assets, income and gains and consider it to be tax evasion.