Latest update on HMRC nudge letters

25 February 2022

Since adopting the Common Reporting Standard (“CRS”) in September 2017, HM Revenue & Customs (“HMRC”) has received a wealth of data on UK resident individuals who hold assets in offshore jurisdictions that have also signed-up to the CRS.  As set out in our August 2020 update, the information HMRC obtains is then checked against individual tax returns, using HMRC’s Connect computer system, before ‘nudge’ letters are issued to taxpayers where HMRC is unable to corroborate the data obtained with submitted tax returns.

HMRC issues more offshore nudge letters in batches every couple of months or so as it works through the collection of CRS and other offshore data received.  Whilst HMRC continues to write to individuals where they identify discrepancies between information received and filed UK tax returns in respect of investment income, relief claimed under Double Tax Agreements, deemed domicile status and residency status claimed under the statutory residence test (“SRT”) amongst other issues, from November 2021 HMRC intended to issue letters to individuals who it believes held crypto assets, advising them that any gains realised from the sale of crypto assets are subject to Capital Gains Tax.  Common forms of disposals of crypto assets that taxpayers may not realise are subject to Capital Gains Tax include but are not limited to:-

  • Selling crypto assets for cash
  • Exchanging one type of crypto asset for another
  • Using crypto assets to purchase goods or services

A copy of the template that HMRC is using for this batch of nudge letters can be viewed on the Chartered Institute of Taxation (“CIOT”) website.

Although receipt of a nudge letter does not necessarily mean a previously submitted tax return is incorrect, HMRC are continuing to actively seek compliance with offshore matters and to prompt disclosures where necessary, as part of their target of raising £4.7bn over 5 years from activity related to overseas assets.  Upon receipt of a nudge letter, individuals and advisers should undertake a thorough review of their own, or clients, tax affairs to determine if a disclosure to HMRC is needed, before an appropriate response is submitted to HMRC.

As with previous rounds of nudge letters based on other specific data obtained by HMRC, telling HMRC about any income or gains received from crypto assets after receiving a nudge letter will normally be regarded by HMRC as a prompted (i.e. non-voluntary) disclosure so any penalties due will likely be higher than if the disclosure was purely voluntary and made before the nudge letter was sent.  If no response to the nudge letter is submitted then it is likely HMRC will follow-up in another way, such as through starting a direct enquiry or investigation into an individual’s tax affairs.  In addition to issuing higher penalties for offshore non-compliance, we are also seeing increased use of other sanctions already available to HMRC, such as:-

  • Using extended assessment time limits
  • Corporate criminal offence
  • Strict liability offence
  • Enabler’s legislation

If you have any queries about how the information exchanged under the CRS may result in an obligation for any of your clients to report a UK tax liability or potentially lead to a future tax enquiry, then please don't hesitate to get in touch with a member of our team.

Read our November 2020 update on nudge letters which focused in on  individuals who are deemed to be domiciled in the UK and individuals who are likely to claim non-UK residence under the Statutory Residence Test (SRT).