The so-called ‘nudge’ letters were intended to remind taxpayers of their duties by educating them that the part of their foreign income that is remitted to the UK is liable to UK income tax and that the term ‘remittance’ can cover transactions that the taxpayer might not have expected it to.
An email was sent on 24 July announcing that letters would be sent to taxpayers ‘later this month’, but the ICAEW said in a statement that this left no time for advisers to react and warn their clients that they might receive the communication.
ICAEW said: “We understand that HMRC has suspended despatch of further letters and a working party is being set up to consider how best to deal with future situations when HMRC wants to contact the taxpayer direct.”
The earlier email from HMRC had a link to a fact sheet which the global accountancy organisation said was misleading in two places:
First, HMRC’s statement that “You buy an asset abroad with your foreign income and bring the asset to the UK”, ignored the exception for personal chattels until the reader reaches the end of the note.
Second, the statement that “you make a gift of some of your foreign income to your adult son or daughter who lives abroad. Three years later your child gives some of these funds to their 16 year old child (your grandchild), who spends the money during a visit to the UK.” The ICAEW said here that the explanation should make it clear that if the funds stay with the adult child it is not a remittance even if they bring it onshore.
HMRC communicating directly to taxpayers tends to undermine the relationship between client and agent, it added, while accepting that the ‘nudge’ technique was effective from the HMRC viewpoint and it did not have objections to the approach per se.
However the adviser should have received a copy of the letter sent to their client or for the letter to have spelt out quite clearly that if the taxpayer had an agent that the agent had not been sent a copy of the letter, ICAEW said.
“The fact that HMRC is approaching taxpayers direct when those taxpayers are likely to have appointed agents to deal with HMRC, is a cause of some concern to us. This is particularly so when the nature of the approach suggests that the taxpayer may not have properly understood the tax system and may have made errors which throws doubt on the competence of their adviser.”
HMRC had not given a statement at the time of this story going live.
To read about HMRC refusing to confirm why it has removed almost all Hong Kong based QROPS from its list of registered schemes, click here.
