Received an HMRC letter asking about your assets or financial affairs? What should you do?

HMRC is taking a different approach to how it deals with wealthy taxpayers with significant or more complex financial affairs.

Following criticism from the Public Accounts Committee, HMRC is seeking more information to build a better understanding of individuals’ financial circumstances. This can include business interests, investments, sources of wealth and wider financial arrangements, including UK and overseas assets.

HMRC is also asking to meet with the taxpayer and their adviser to discuss these areas in more detail.

For anyone receiving one of these letters, the key message is: take a breath. Don’t panic, but don’t ignore it either.

Do I have to provide the information HMRC is asking for?

There is an important distinction between HMRC asking you to provide information voluntarily and information that can be requested as part of a formal compliance check.

Ordinarily, HMRC should only request documents or information that are reasonably required to check your tax position, in other words, whether the correct amount of tax has been paid.

This might include bank statements, accounting records, contracts or agreements relating to a particular tax year.

However, HMRC does not have an unrestricted right to demand information simply because it may be of interest or potentially useful.

The letters being issued by HMRC are broadly drafted and may ask for information that goes beyond what a taxpayer is legally obliged to provide. That makes it particularly important to understand the nature and scope of HMRC’s request before responding.

What should you do if you receive an HMRC letter?

Ignoring the correspondence is not the best approach. Although a taxpayer may not be compelled to co-operate with a voluntary request for information, choosing not to engage could result in HMRC taking a more formal approach to checking their tax affairs.

Equally, receiving a letter does not mean that everything HMRC has requested should automatically be provided.

Before responding, taxpayers and their advisers should consider:

• what HMRC is asking for and why
• whether the request is voluntary or part of a formal compliance check
• what information is reasonably required to check the tax position
• the potential merits and consequences of engaging constructively with HMRC

Specialist professional advice can help establish the appropriate response based on individual circumstances.

What if there is an error in your tax affairs?

Receiving one of these letters may also be an appropriate point at which to review your tax affairs.

If an error is identified, taking the lead can be preferable to waiting for HMRC to discover it. A voluntary disclosure can give the taxpayer greater control over the process and may be less stressful than dealing with a formal HMRC compliance check.

Depending on the circumstances, voluntarily disclosing an error can also affect the penalty position and, in certain cases, may result in no penalty being charged.

Have you received a letter from HMRC?

If HMRC has contacted you seeking detailed information about your assets, investments, business interests, overseas assets, sources of wealth or wider financial arrangements, take specialist advice before responding.

Understanding what HMRC is asking for, what information needs to be provided, and the potential consequences of your response can help you decide how best to proceed.

For advice on responding to an HMRC letter or information request, please get in touch with our specialist tax advisers.