As we come to the end of 2023, HMRC is sending out more 'nudge letters' to different types of taxpayers and businesses. These include further letters to taxpayers identified via the disclosures known as the 'Pandora' papers who are suspected of concealing unreported income and gains and two new different VAT nudges, one to accountants with clients in the food takeaway business and the other to a range of different business who are using online sales platforms.
Unreported income and gains
The Chartered Institute of Taxation (CIOT) reports that following the 'continued risking' of the Pandora Papers data, HMRC is sending out a further tranche of letters from the week commencing 11 December 2023 which will include an extended response period of 60 days (The initial tranche provided a response period of 30 days) due to the Christmas holiday period.
The letters are being copied to agents where HMRC are aware that the taxpayer is represented by an agent and the appropriate authorisation is in place. A dedicated team has been set up by HMRC to handle queries and a telephone number is provided on the letter. The call handlers will be able to assist taxpayers and agents in identifying what the letter relates to.
The letter explains that penalties of up to 200% of any tax that is found to be due may be charged. It recommends getting professional advice if the taxpayer is not sure what they need to do to correct their UK tax position. It explains that the taxpayer need take no action if they believe their tax affairs are correct and up to date.
- Potential Penalties for undeclared income could be up to 200% due to the offshore nature of the income and those receiving the latter have 30 days to respond.
- If any person is found to have acted dishonestly or fraudulently, HMRC may prosecute and use of the Contractual Disclosure Facility is the best option.
- For all other non-deliberate non-compliance, the Worldwide Disclosure Facility can be used. Assistance from a tax dispute specialist is recommended.
VAT
The Institute of Chartered Accountants in England and Wales (ICAEW) is reporting that HMRC is extending its VAT nudge letter campaigns,
Food order and delivery business
The HMRC is writing to some 500 agents, providing a VAT 'nudge' in respect of clients in the food order or delivery sector using card payment providers or online intermediaries. HMRC has offered a redacted list of your clients to whom they think this applies. HMRC asks agents: "Please check that your clients’ future VAT, Income Tax and Corporation Tax returns include all sales, whether they’re paid by cash, card or any other method. You need to make sure all VAT returns are sent to us and any tax is paid on time." see Link to ICAEW copy of letter.
Online sellers
HMRC has also sent letters this month reminding businesses who are transacting via online sales platforms to recognise sales for VAT and Corporation Tax purposes before the deduction of payment processor fees.
The concern is that businesses are not accounting correctly for the amount charged by the payment processing services as part of their income for VAT. The recipients are asked to make sure their systems and processes correctly account for VAT on the full value of supplies and can distinguish PPS fees from the other receipts and expenses of their trades.
The ICAEW notes that three letters are being sent to different business populations this month, from HMRC’s Large Business, Mid-Sized Business and Intelligence, and Surveillance and Border Control (ISBC) departments. All letters contain the same key message.
Businesses are asked to:
- Check whether they have accounted for VAT correctly in respect of PPS over the last four years.
- Check that they have calculated their profits correctly in respect of PPS income and charges in their most recent corporation tax return.
- Make any changes as necessary.
Businesses are requested to do this within 45 days of the date of the letter. No response is required if the business has accounted for VAT and corporation tax correctly.
The letters advise that no penalties will be charged in respect of any errors identified, provided the business took reasonable care in preparing its returns. However, if the recipient finds an error after checking those returns and fails to notify this, HMRC will treat this as careless behaviour, even if the error was neither careless nor deliberate on the original return(s).
Useful guides on this topic
Correcting VAT errors
What are the VAT error correction time limits? Can you correct errors through the VAT return? Do you have to notify HMRC?
Penalties: Error or Mistake in a tax return
What penalties apply if you make an error or mistake? Is there a penalty if you fail to tell HMRC about an under-assessment? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?
Penalties: Offshore Income, CGT & IHT
What penalties apply for errors and failures relating to offshore Income and Capital Gains Tax (CGT)?
Contractual Disclosure Facility (CDF)
What is HMRC's Contractual Disclosure Facility (CDF)? How does it work? What must taxpayers do under the CDF?
Worldwide Disclosure Facility
HMRC's Worldwide Disclosure Facility (WDF) opened on 5 September 2016. It allows the disclosure of a UK tax liability relating wholly or partly to an offshore issue.
External links
Pandora Papers - HMRC Compliance Activity
