In yet a further attempt to close the tax gap and raise much needed revenue, HMRC is set to launch two new campaigns in the coming weeks. This continues the strategy of using nudge letters to encourage taxpayers to come forward and correct non-compliance without the need for HMRC to open a formal enquiry.
Whilst many of the previous HMRC nudge letters have focused on offshore matters, two new campaigns will be aimed at those who have disposed of UK residential property and those with taxable employment benefits.
HMRC receives details of property disposals through various sources including the UK Land Registry. This data is now being used to write to taxpayers who, HMRC believe, disposed of a property in 2018/19, and have not declared that disposal on their tax return.
The letter will ask taxpayers to consider their capital gains tax (CGT) position in respect of the disposal and, if necessary, amend their return, or use the digital disclosure service, to pay any CGT due.
This is not the first time HMRC has targeted residential property disposals in this way and it previously reported a 15 per cent success rate when running a similar campaign for the 2017/18 tax year. We understand that up to 14,000 letters are due to be sent over the next few months, which means HMRC may be anticipating up to 2,000 taxpayers have a liability to disclose. If this proves to be correct, it’s an impressive return for limited effort.
The second campaign, again focused on the 2018/19 tax year, will target taxpayers where taxable employment benefits information provided to HMRC by employers does not match the information in submitted personal tax returns. Approximately 1,700 letters will be mailed, some to advisers and some directly to individuals.
Interestingly, unlike the earlier offshore nudge letters, both letters include details of the information HMRC is looking to check. In a further change from previous letters, neither letter will ask taxpayers to sign and return a certificate of tax position. This is welcome news and follows continued criticism from the professional bodies on the use of these certificates. The concern centred around HMRC’s wording, seemingly implying that completing the certificate was mandatory. There is no legal obligation for taxpayers to complete such certificates, and indeed, in many cases, this may not be the best course of action.
Taxpayers and their advisers need to carefully consider the best response to any nudge letter, especially if a disclosure is required, as HMRC will almost certainly be looking to charge penalties where possible. Clearly, this approach from HMRC is not going away and is seen as a cost-effective way of maximising collection of underpaid taxes.