HMRC issues nudge letters targeting residence and domicile
In an extension of its 'nudge' letters campaign, HMRC is writing to wealthy taxpayers encouraging them to bring their tax affairs into line.
HMRC has sent 'nudge' letters to "wealthy" taxpayers who:
- have become deemed UK domiciled for tax purposes under Finance Act 2017, encouraging them to check tax returns previously filed; and
- have received a notice to file a tax return for the year to 5 April 2018, but who have not filed it, despite having filed returns for the years to 5 April 2017 and 2019.
The guidance enclosed with the letters relating to individuals' deemed UK domicile is complex, dealing with both the new regime and transitional changes. HMRC is also sending "educational" letters to "wealthy" taxpayers together with guidance on the statutory residence test, to help those taxpayers avoid making errors when declaring themselves non-resident for UK tax purposes.
"Wealthy", for these purposes, means those with a net worth of £20m or more.
Nudge letters requiring a response are more than a simple reminder to taxpayers, as the colloquial title might suggest. HMRC's practice so far has been to send these letters to individuals or companies that it suspects are not fully compliant or up-to-date with their tax affairs, with the tacit threat that it will open an enquiry if they do not receive a response that it considers satisfactory; effectively, they are a precursor to an enquiry, offering a chance for taxpayers that receive them to remedy their tax affairs outside the context of an enquiry.
Taxpayers who receive nudge letters should consider their response carefully and quickly, in conjunction with their professional advisors. The time frame set out for a response (in the letter relating to outstanding tax returns) is relatively brief and while HMRC have tended to adopt a pragmatic approach to deadlines set out in nudge letters where it can see substantive engagement from taxpayers, this cannot be guaranteed. Since HMRC has, in the past, made good on its threat to enquire into the tax affairs of taxpayers who do not respond to nudge letters, these letters should be taken seriously.
A copy of the letters and briefings can be found here (for the deemed domicile letter), here (for the statutory residence letter), and here (for the outstanding self-assessment returns letter).