It appears that HMRC are now targeting individuals with letters asking them to check their residency position before they complete their tax returns for the tax year ended 5 April 2020. This means that they are going to need to look carefully at the Government’s Statutory Residence Tax (the test that the Government uses to define whether a person is resident in the UK for tax purposes or not) to see exactly what their tax residency status is.
This is not the first nudge letter campaign we have seen. There were previous campaigns regarding Swiss investments and then more recently, offshore income and tax gains in general
The main reason for these campaigns is to increase the tax take, and this one comes as the Government looks at ways of clawing back billions spent during the current pandemic. The reasons are always the same: trying to flush out people who might not have been completing their returns on the correct basis and alerting them that they urgently need to look into their affairs.
It also means they are putting the onus on those who receive the letters so that if in the future HMRC find discrepancies in these individuals’ returns, this could ultimately lead to fines and stronger penalties.
HMRC have access to a lot more records than you might think, so they may now be targeting people where they have gathered material over a person’s residency position which is causing concern.
HMRC are not always right in their information and calculations. They have previously missed the mark and just ended up unnecessarily worrying taxpayers doing nothing wrong. This caused them some cost in their advisors responding.
It has been seven years since the introduction of the Statutory Residence Test (SRT) to determine tax residency in the UK, having taken effect from 6 April 2013. To date, HMRC have for the main part relied upon individuals to self-assess their position as to whether they are tax resident in the UK or not.
If someone receives one of these letters they should not ignore it and should consider their position in light of the SRT. If they are unsure, they should seek professional advice. It is much more unpleasant in the long run if they get it wrong and face penalties and interest when they could have put it right.