Pandora Papers: HMRC sends ‘nudge letters’ to taxpayers

International currencies

14th June 2023

In 2021, the International Consortium of Investigative Journalists released close to 12 million documents, allegedly involving offshore deals and transactions to conceal wealth; the so called, ‘Pandora Papers’.

Two years after the announcement in October 2021 that HMRC were to consider an investigation, HMRC has started issuing letters to some of the taxpayers named, requesting they review their tax affairs. Letters will be sent to hundreds of taxpayers, and they will have 30 days to respond to the letter.

Should updates to their tax affairs be necessary, HMRC is recommending  that taxpayers go to the GOV.UK website and search ‘tell HMRC about underpaid tax from previous years’. There are three disclosure options, two of which are potentially relevant here – the Contract Disclose Facility (CDF) or the Digital Disclosure Service (DDS). Care must be taken, as owing to the nature of HMRC’s enquiries, the DDS may not be the most suitable method of disclosure to HMRC as fraud could be suspected. The alternative method is the Contractual Disclosure Facility (CDF), under Code of Practice 9 (COP9), which offers protection from criminal prosecution for any issues disclosed. There are similarities to the Euro Pacific Bank case, where HMRC encouraged taxpayers with connections to the now liquidated bank to use the Worldwide Disclosure Facility (WDF), although HMRC should have included reference to the CDF.

Disclosures and penalties 

If a taxpayer finds a mistake in their filings to HMRC, disclosing the error or omission before HMRC sends a letter or opens an enquiry will lead to the most favourable outcome. Following receipt of an HMRC letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes. Prompted penalty rates are higher than unprompted penalties rates. For example, an offshore omission can result in the maximum prompted penalty of 200%. In addition, a further penalty of 50% of the tax could be levied for an ‘asset move’; this is where assets have been moved from the UK or other jurisdictions and therefore is considered to be a method to avoid UK tax or to disguise non-compliance with UK tax legislation.

Completely voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error. Broadly, the length of time interacting with HMRC will also be significantly shorter in comparison to a full investigation.

A professional tax advisor can guide a taxpayer through the disclosure process and advise, where applicable, the penalty mitigation available. We recommend taxpayers immediately seek professional advice following receipt of an HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.

At haysmacintyre, we have a wealth of experience in making successful disclosures to HMRC under the CDF and WDF, achieving the most favourable outcome for clients, bringing closure to their earlier years’ tax affairs and allowing them to move forward.

We are here to help; should you require more information or professional advice, please contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager.

Danielle Ford

Partner, Head of Tax Disputes & Resolutions
+44 20 7969 5591
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