HMRC Nudge Letter - Foreign Income - How To Respond?

D924

I've received a nudge letter from HMRC referring to my foreign assets (a share dealing account based in Europe) and suggesting that I need to check my taxes are correct.

I know that my gains are below the dividend and capital gains allowances, no problems there. The CRS standard only reports total proceeds so HMRC have no way of actually knowing this, however. They just know the total proceeds.

My main goal here is avoiding an investigation as although I have nothing to hide it is stress I don't need.

Would it be better to just send back the form, ticking the "my gains are covered by allowances" box, or should I also send a covering letter explaining in detail my gains and losses for the tax years they are questioning? I have never had to deal with HMRC before and I have always been very careful to stay within the allowances so I wouldn't have to!

blenz101

Well the general rule is that if you are receiving income which isn't taxed at source then you should be completing a self assessment showing all of the calculations.

km1500

tick the box and send it back

if they subsequently ask for calculations (unlikely) then send them then

masonic

Don't forget that if you hold offshore funds that don't have UK reporting status, you need to include any gains in your total income for income tax, not capital gains.

masonic

blenz101 said:

Well the general rule is that if you are receiving income which isn't taxed at source then you should be completing a self assessment showing all of the calculations.

I've never provided any calculations related to untaxed income I've received, though I've done the calculations and could make them available upon request.

MarcoM

D924 said:

I've received a nudge letter from HMRC referring to my foreign assets (a share dealing account based in Europe) and suggesting that I need to check my taxes are correct.

I know that my gains are below the dividend and capital gains allowances, no problems there. The CRS standard only reports total proceeds so HMRC have no way of actually knowing this, however. They just know the total proceeds.

My main goal here is avoiding an investigation as although I have nothing to hide it is stress I don't need.

Would it be better to just send back the form, ticking the "my gains are covered by allowances" box, or should I also send a covering letter explaining in detail my gains and losses for the tax years they are questioning? I have never had to deal with HMRC before and I have always been very careful to stay within the allowances so I wouldn't have to!

Assuming you are already providing a self assessment, I would respond with a letter stating that your foreign income is already reported in your SA.

I received a similar letter a couple of years ago and was told by an advisor to send them a letter referring to the SA and not sign their form.

Does the correspondence you received  have a certificate requiring you to certify that your tax returns are correct and that you have nothing to disclose? If so it could be a generic letter based on information received by HMRC under the "global" common reporting standards.

Does the letter say you should only reply if there is anything to disclose? 

D924

blenz101 said:

Well the general rule is that if you are receiving income which isn't taxed at source then you should be completing a self assessment showing all of the calculations.

As I understood it this is only required if the income doesn't exceed your allowances - the £12300 capital gains, the £2000 dividend, and the £12570 income.

km1500 said:

tick the box and send it back

if they subsequently ask for calculations (unlikely) then send them then

Apparently any mistakes in the calculations then become a criminal offence and tantamount to fraud if you tick the box.

Most of my calculations are sound, but I sold some cryptocurrency assets in 2018/19 that I mined in 2017/18 - I don't have the appropriate records to be able to calculate the cost basis. In reality it was around a break even (why I sold it, before losing more than I put in), as I remember it, but:

1. If the cost basis was too high, higher than £12570 in total, I actually become liable for income tax in 2017/18

2. If the cost basis was too low, lower than £4000 in total, I'll exceed my CGT allowance in 2018/19.

Would they accept some sloppy calculation saying I ran X megahash mining rig between Y and Z dates? The difficulty of the tax reporting for crypto mining even on a hobby scale is absurd and I'm not sure there was even any actual guidance when I did it in 2017.

blenz101

masonic said:

blenz101 said:

Well the general rule is that if you are receiving income which isn't taxed at source then you should be completing a self assessment showing all of the calculations.

I've never provided any calculations related to untaxed income I've received, though I've done the calculations and could make them available upon request.

Sorry, perhaps I worded it badly.  I more meant that you should be declaring all of your income that isn't taxed at source and providing HMRC a breakdown via self assessment.  If they want to see the detailed calculations they will ask.

Obviously by not declaring it, even if it is with your allowances, results in getting their attention as the OP has discovered.  In the event of an investigation if a liability was subsequently found then the penalties are designed to be punitive. 

D924

masonic said:

Don't forget that if you hold offshore funds that don't have UK reporting status, you need to include any gains in your total income for income tax, not capital gains.

So does that mean that buying and selling shares using a Dutch broker (Degiro) is going to create me a massive income tax liability compared to using a UK broker with which I could benefit from the CGT allowance?

Extremely concerning if my understanding of what you just said is correct.

coyrls

D924 said:

masonic said:

Don't forget that if you hold offshore funds that don't have UK reporting status, you need to include any gains in your total income for income tax, not capital gains.

So does that mean that buying and selling shares using a Dutch broker (Degiro) is going to create me a massive income tax liability compared to using a UK broker with which I could benefit from the CGT allowance?

Extremely concerning if my understanding of what you just said is correct.

It's not to do with where your broker is located, it's the funds that you invest in that matter.  You need to check if the funds have UK reporting status.  It there is a UK factsheet for the funds from the fund provider, that means it's pretty certain that they have UK reporting status.

gravlax

You can look up funds that HMRC have listed as having UK reporting status
https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-funds