A Guide on the Certificate of Tax Position

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Mark Wilson is a Partner of Richard Nelson LLP and has specialised in tax disclosures, defending HMRC investigations and prosecutions for over 20 years.

A new investigation tool that HMRC has launched has resulted in hundreds of UK citizens receiving letters headed ‘This is your final opportunity to bring your worldwide tax affairs up to date’. The Certificate of Tax Position is part of a recently introduced campaign by the government to encourage confession of previously undeclared offshore income and assets.

This guide will cover what Certificate of Tax Position is, why HMRC are investigating individuals and how you can respond if you have received a letter.

Why are HMRC sending out this letter

Letters regarding the Certificate of Tax Position are sent out by the Risk and Intelligence Service. They are a team within HMRC’s Wealthy, Mid-Sized Business and Compliance Unit. The recipients of these letters are chosen through information shared on owners of foreign bank accounts via the Common Reporting Standard (CRS). The CRS is an agreement, that involves over 100 jurisdictions, that allows countries to share data on non-residents’ bank accounts and financial assets offshore.

If you have received a letter, it will be because the government have reason to believe that you have undeclared offshore income and gains. Regardless of whether you do or do not, it is vital to carefully read the three formal declarations that HMRC includes for recipients to sign. These declarations range from stating that you do not have any offshore income on which UK tax may be due; you do have offshore assets, however, your tax affairs do not need updating; or that you need to bring your tax affairs up to date.

What you should do with this letter

All Certificate of Tax Position letters are dated and state that recipients must respond within 30 days. Therefore, it is not recommended to ignore the letter, as it will incur further, an avoidable investigation from the HMRC. It is important to remember that the letter is a prosecutable document. This means that signing the document incorrectly with inaccurate information can result in the recipient being brought to a court of law, and potentially criminal offence.

Before responding, it is important to be completely honest with yourself, or anyone offering you legal advice, on whether or not there might be an error in your filed tax returns. If there are errors, then it would be valuable to gain professional legal advice on how to approach the HMRC to avoid penalties or criminal offence. If you are unsure how to respond and do not have enough time to seek legal advice, HMRC acknowledges that a response by letter (rather than signing the Certificate of Tax Position) is also an acceptable reaction.

Conclusion

It is completely understandable that anyone who should receive a letter from HMRC regarding a personal investigation into their tax affairs would be concerned. Nevertheless, it is important to carefully consider how you respond and to not react rashly hoping that it will make the situation go away. However you intend to reply to any letters regarding the Certificate of Tax Position, you should be aware of all of the possible consequences that can result from your response. It is advisable to obtain representation from an experienced tax investigation lawyer who is aware of all the important issues and advises you in the way that best protects you against any investigative challenge from HMRC and avoid any more serious penalties or even criminal action.