HMRC to go ahead with 'nudge' letters for non-dom remittance basis users

HMRC said last month that it would be writing directly to all non-domiciled UK taxpayers who claim the remittance basis of taxation in the UK, but would not be copying the letters to tax agents. According to HMRC, these 'nudge' letters are needed as "[HMRC's] research has shown that some of [HMRC's] customers who are taxed on the remittance basis may not understand fully what a remittance is and may therefore experience some difficulty in completing their tax return accurately".

Individuals who are UK resident but non-UK domiciled can elect for the remittance basis of taxation to apply. This means that their earnings for non-UK duties are only taxed in the UK if 'remitted' to the UK. In addition, non-UK sources of investment income may only be taxed in the UK if remitted. Those using the remittance basis may have to pay a charge of £30,000 or £50,000, known as the remittance basis charge, for each tax year in which they use the remittance basis.

HMRC's letter includes a factsheet of examples detailing various types of remittances, clarifying what is or is not a remittance. It invites individuals to contact their agent or HMRC if they believe they have made a remittance that has not previously been declared. In this situation, individuals should seek advice on the actions that should be taken to remedy the position, the letter says.

However the Institute of Chartered Accountants in England and Wales (ICAEW) and the Chartered Institute of Taxation (CIOT) said that the timing of the announcement of the letter gave agents no time to react or brief clients and criticised the fact that agents were not to be sent copies of the letters sent to their clients. They also argued that some parts of the factsheet accompanying the letters were ambiguous and could be misleading.

HMRC initially suspended the distribution of the letters, but confirmed at the end of last week that it would be resuming the issue of the letters at the end of this week, but will copy in authorised tax agents. A representative of HMRC said HMRC will not be changing the examples in the factsheet at this stage. However, he confirmed that a working party is being set up to consider how best to deal with future situations when HMRC wants to contact the taxpayer directly.

Jason Collins a tax expert from Pinsent Masons, the law firm behind Out-law said "HMRC should be applauded for listening to the concerns of the profession about an attempt to bypass registered agents without good reason. But non-doms should take note that HMRC clearly believes money has been remitted to the UK and not been declared, whether by accident or otherwise - and is trying to encourage greater compliance."

Collins said that the UK's agreements for the automatic exchange of information with Jersey, Guernsey and the Isle of Man (the Crown Dependencies) and the UK's overseas territories will mean that HMRC will soon have more information than they have ever had about accounts held in these territories by UK resident individuals, including those who are non-domiciled.

"This "nudge" letter is a clear statement of intent. The question of what constitutes a remittance is a complex area and non-domiciled individuals should check their affairs to make sure all the 'T's have been crossed and 'I's dotted. HMRC can look back 4 to 20 years into a taxpayer's affairs, depending on circumstances. Acting now may save a lot of pain later" said Jason Collins.