Pandora Papers: What to do if you receive a nudge letter from HMRC

The Pandora Papers were a major leak of financial documents that revealed the offshore assets of many wealthy individuals and companies. In the wake of the leak, HMRC began sending “nudge letters” to UK residents who may have been identified as having offshore assets. These letters were designed to encourage disclosure of offshore assets and the income and gains arising from them.

The first tranche of 660 “nudge letters” to UK taxpayers were sent out in June 2023. HMRC opted to initially send out these letters as opposed to opening formal investigations into companies and individuals.

Sending out these “nudge letters” has proven to be a successful strategy for HMRC, given the minimal work that has been required. However, for some of the more complex structures, the 30 day limit given by HMRC makes it impossible for all who may owe tax to comply. This could be for a number of reasons including the inability to obtain and provide supporting statements and documents.

It is believed that HMRC is preparing to send out more “nudge letters” to those named in the Pandora Papers.

If you have received a nudge letter from HMRC previously, or feel that one may soon be forthcoming, it is important to take action. The letter will give you a deadline to review your tax affairs and disclose any offshore income or gains that you have not previously reported to HMRC.

There are two options for responding to a nudge letter:

• You can confirm that you have no offshore assets or income. If you are sure that you have no offshore assets or income, you can simply reply to the letter stating this. You will not need to take any further action unless HMRC approach you again.
• You can disclose offshore income or gains that you have not previously reported to HMRC. If you have offshore income or gains that you have not previously reported to HMRC, you can disclose them under the HMRC Disclosure Facility. This will allow you to pay any outstanding tax and penalties without facing criminal prosecution.

If you are unsure about whether or not you should disclose your offshore assets or income, you should seek professional advice. A tax advisor can help you to understand your options and make the best decision for your circumstances.

Here are some tips for responding to a nudge letter from HMRC:

• Read the letter carefully. Make sure that you understand what HMRC is asking you to do.
• Gather all of the relevant paperwork that you are able to possess. This may include bank statements, tax returns, and documents relating to your offshore assets or income.
• Decide whether or not you want to disclose your offshore assets or income. If you do decide to disclose, you will need to complete the HMRC Disclosure Facility form.
• Get professional advice. If you are unsure about what to do, you should seek professional advice from a tax advisor.

Remember, the deadline for responding to a nudge letter is usually 30 days. If you do not respond to the letter within the deadline, HMRC may take further action, such as opening an investigation.

By taking action promptly, you can minimise the risk of penalties and prosecution.

Contact a tax adviser today to discuss your options.

At Friend Partnership, we have many years of experience dealing with tax planning and tax investigations. We can assist you with any HMRC enquiries or nudge letters. You can contact David Gillies on a no obligation basis by call 0121 633 2000 or alternatively e-mailing david.gillies@friendllp.com