Information obtained from HM Revenue & Customs (HMRC) under a Freedom of Information (FOI) request by tax consultants Andersen in the UK reveals that HMRC has to date issued nearly 177,000 “nudge” letters in respect of offshore income or gains since they started the practice with less than a thousand in the 2016/17 tax year.
This is thought to be the first time that HMRC has released public statistics on the actual number of “nudge” letters issued, despite a general awareness that it has sent thousands each year for the last several years.
The figures also reveal that the number of offshore income or gains letters issued by HMRC peaked in the 2018/19 tax year, with 53,327 letters sent out. There has since been a dramatic decline, with only 28,609 letters issued in the 2020/21 tax year and only c. 13,000 so far in the current tax year.
Commenting on this news, Andrew Park (pictured), Tax Investigations Partner at Andersen in the UK, said: “This is the first time that HMRC has been transparent about the number of “nudge” letters sent to the taxpayer in recent years. Although 177,000 may seem impressive, it is not a hugely surprising figure – “nudge” letters are cheap for HMRC to generate as they rely on computers automatically cross-comparing intelligence information with that already disclosed in submitted tax returns.
“The number of letters issued by HMRC will most likely stabilise at something around the current year level due to the speculative nature of most “nudge” letters. There is a churn of new people with overseas connections coming to the UK, and there is a seemingly endless succession of data leaks from overseas service providers yielding new data – such as the recent “Panama Papers”.
“It should be stressed too that although “nudge” letters are an undeniably efficient use of HMRC’s scarce resources, they entirely depend on taxpayers knowing that they have – or might have – something to declare.”
Offshore income and gains “nudge” letters were HMRC’s first major “nudge” letter initiative further to its pioneering use of applied behavioural science to improve taxpayer compliance.
HMRC began to issue offshore “nudge” letters due to the unprecedented amounts of data that it had started to receive over the precious decade from leaks from offshore banks, trust companies and law firms. The methodology was initiated in anticipation of a deluge of further data from information transparency and exchange initiatives such as the Common Reporting Standard (CRS). The peak in offshore “nudge” letters – 2018/19 – coincided with a deluge in new information from the CRS.
The number of “nudge” letters issued reflects not just the mass of new offshore related information HMRC is receiving, but also the inherent problem that it has in using technology to try to automatically cross-compare calendar year information provided to it from overseas – where calendar year fiscal years are the norm – with the UK’s fiscal year.