HMRC have recently begun writing to UK residents named in the leaked Pandora Papers to give them a chance to report any undeclared income or gains.
The Pandora Papers
The Pandora Papers involved a leak of more than 11 million records from 14 offshore service providers in 2021 and 2022. HMRC have spent the time since then reviewing the data and have now begun to send out "nudge letters" to UK residents potentially implicated.
These "nudge letters" warn the recipient that HMRC believe they may owe tax on foreign income or gains and urges them to bring their affairs up to date. Penalties may be as 200% (subject to reduction depending on how the disclosure is handled), and in certain cases HMRC may launch criminal prosecutions.
HMRC disclosure facilities
HMRC themselves recommend that anyone in receipt of such a letter takes professional tax advice. If an individual does have historic undeclared tax liabilities, they should regularise their affairs by making a disclosure under one of HMRC's disclosure facilities. It is important to ensure that the appropriate facility is used. The two facilities referred to are:
The Contractual Disclosure Facility (CDF). This is part of Code of Practice 9 (COP9) and is a contractual arrangement whereby HMRC undertakes not to launch a criminal investigation in return for full disclosure of tax fraud.
The Worldwide Disclosure Facility (WDF). This is for use by any taxpayer who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue. The WDF does not provide any protection from prosecution.
What should I do if I receive a nudge letter?
The most important thing is not to ignore it. Seek professional advice straightaway from a tax dispute resolution specialist.
It may be that no tax is due - although this should always be checked carefully before responding to HMRC. If tax is due, then a voluntary disclosure should be made as soon as possible. This ensures that you have control over the narrative with HMRC and the process, and if done correctly can help mitigate penalties.
"Recipients of these letters can make disclosures under the Disclosure Facilities made available by HMRC. It is important that individuals use the correct disclosure facility. If individuals aren’t clear about which facility to use, HMRC would recommend getting professional tax advice."