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clientservices@lsrpartners.comA letter from HMRC has landed on your doormat. It says they have information about offshore income or gains. It does not say what that information is. If that is you, this episode is for you.
Take a breath. In episode 24 of the Tax Compass Podcast, Simon Roue and Laura Sant explain why these letters exist. More importantly, they explain why receiving one is not an accusation. It is the start of an administrative process, and one you can navigate.
Tax authorities around the world now share information. Banks in OECD countries report account details across borders. HMRC receives regular data from countries such as Australia, Germany, France and South Africa.
When that data does not match your tax return, a nudge letter goes out. The letter asks a simple question. Do you have anything to tell us?
Foreign income features heavily here. UK banks report interest to HMRC automatically. Overseas income does not appear on their systems in the same way. You have to tell them about it yourself.
This one catches out more people than anything else. You own a rental property in South Africa. You declare the income there and pay South African tax. Job done, surely?
Not quite. If you are a UK tax resident, the starting point is simple. You are taxable on your worldwide income and gains. A double tax treaty exists to prevent you paying tax twice on the same money. It does not stop both countries from wanting to tax it.
Your South African tax bill might be modest because the rental income is your only income there. In the UK, that same income sits on top of your salary. The rates differ, so a UK liability can still arise. Even where no extra tax is due, the income still belongs on your UK tax return.
Some people receive a nudge letter and genuinely cannot think what it refers to. Good news. You can call HMRC and ask what information they hold. They will tell you.
This matters if you have several investments and plenty going on. Something may have happened that you simply had not registered. A quick call often clears the fog before any work begins.
One client arrived convinced he was in serious trouble. The letters can read that way. In reality, the disclosure process is governed by legislation. Penalties, interest and timescales all follow set rules.
HMRC accepts that the vast majority of cases come from misunderstanding, not concealment. Simon knows this from personal experience. He was investigated himself many years ago, through no fault of his own. It was painful and tedious. It was also just a process, with no lasting mark against his name or his regulatory status.
Disclosures often reach back several years. Each year gets calculated under the rules that applied at the time. Personal allowances, dividend rules and rates all change, so the sums take care.
One trap deserves a mention. In the UK, you only have four years to reclaim overpaid tax. Miss that window in another country and you may lose a refund you could have claimed. Getting advice early protects you from that outcome.
The final step involves making an offer to HMRC and paying it when you submit. Sometimes they push back on tiny details. One case turned into a debate over £6.40 of interest on a liability running into the thousands. Patience helps.
Start by finding out what HMRC knows. Then work out what needs disclosing and for which years. The calculations reward experience, because the rules shift from year to year.
That is where we come in. LSR Partners handle disclosure work regularly, and we always work to keep what you owe to a minimum. Book a consultation at lsrpartners.com and let us take the weight off.
LSR Partners help you pay the right tax in the right place at the right time.
Part two of this miniseries covers Section 9A enquiries. Listen to the Tax Compass Podcast on Spotify, Apple Podcasts and YouTube.
This article is for general information purposes only and does not constitute tax advice. Please contact us to discuss your specific position.
