HMRC has been sending nudge letters to overseas companies its records show own UK commercial property but haven’t disclosed rental income for those properties.

The letters, sent during August, aim to check the companies have told HMRC about all the UK tax they owe for their non-residential property. The tax body’s records suggest these offshore businesses haven’t registered for income tax or corporation tax.

What does the nudge letter say?

The letter offers the company a choice to either:

  • Declare all its outstanding UK tax

Or…

  • Explain why it doesn’t need to make a disclosure

The business must either start the disclosure process or tell HMRC why it thinks it doesn’t need to make a disclosure by the deadline (which is date of letter plus 40 days).

If making a disclosure, the company is asked to:

  • Complete a ‘certificate of tax position’ and send it to HMRC
  • Tell HMRC and then declare any tax the business owes

Companies that believe they don’t need to make a disclosure are also asked to complete the certificate and send it to HMRC.

Rental income for non-resident landlords

Before 6 April 2020, rental income received by a non-UK resident company was subject to income tax. From 6 April 2020, the company must account for any liability under the corporation tax rules.

So, non-resident commercial landlords that have received rental income they haven’t disclosed, must make a disclosure.

What if the company has had tax taken at source?

If the company believes tax has already been deducted at source under the Non-Resident Landlord Scheme (NRLS), they’re asked to include this information in the certificate.

What else?

The landlord will need to consider:

  • Whether the company owes any tax that may have been due in the past
  • Whether the business owes any VAT
  • Penalties

In the letter, HMRC warns that if it discovers the business hasn’t told the tax body everything, it will view this “very seriously”.

It adds that if the company misses the deadline, it may assess what it believes it owes. And it may open an investigation and consider charging extra penalties.

What about tax fraud?

If a business has committed tax fraud and wants to tell HMRC, the letter points them in the direction of the Contractual Disclosure Facility (CDF).

Seek professional advice

Because of the complexity of offshore tax and disclosures, HMRC recommends that anyone who receives a nudge letter should get professional tax advice.

If they want HMRC to deal with an agent (such as a tax adviser or accountant) on their behalf, the landlord must give their permission.

Our thoughts

The world is now much smaller, especially when it comes to taxation.

HMRC has lots of data relating to the ownership of assets by non-resident landlords because of information sharing initiatives like the Common Reporting Standard (CRS).

It’s therefore likely that if your overseas company has a source of income in the UK that isn’t being declared, you’ll receive a letter from HMRC at some point.

It’s best not to ignore the letters. And you should tell HMRC if there’s any income that should be declared.

The more co-operative you are as a taxpayer, the less likely you’ll be given a fine when matters are finalised.

Ideally, if you know you’re in receipt of an untaxed form of foreign income, you shouldn’t wait until you receive a letter. It’s much better to be in control of a disclosure because lower penalties are likely.

But if you haven’t brought your tax affairs up to date and you receive a letter, you should deal with the issue rather than ignore it and hope it goes away.

Specialist tax advice for overseas commercial landlords

If you’ve received a nudge letter from HMRC, talk to our team of specialist tax advisers on 07813 434195 or email: stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation