Certificates of Tax Position: A Comprehensive Guide

The Certificate of Tax Position was originally launched by HMRC to ‘draw-out’ or ‘force’ disclosure of previously undeclared offshore income and gains. This guide explains all you need to know about this investigative tool and how it is currently being deployed.

What is a Certificate of Tax Position letter?

A Certificate of Tax Position letter is sent to make you aware that HMRC suspects irregularities in your international tax affairs. The notice will indicate that this is your last opportunity to address any issues before action is taken.

These certificates are sent to you with letters headed ‘Important: Your final opportunity to bring your worldwide tax affairs up to date’, which alludes to tax irregularities on undeclared foreign bank accounts or assets. The body responsible for Certificates of Tax position is the Risk and Intelligence Service, Offshore – a special project team within the Wealthy, Mid-Sized Business and Compliance unit.

Those who receive such a letter may wonder if it is merely a ‘fishing exercise’ by HMRC or whether it is based upon real information and is something to be worried about? The answer to the second question is probably “Yes” and “Yes”.

The requirements of a Certificate of Tax position letter

Certificates of Tax Position result from information shared by foreign banks that HMRC is receiving via Common Reporting Standard (CRS). Since its inception in 2014, this has expanded so that now the vast majority of countries worldwide automatically share significant details of offshore accounts with HMRC.

So, the taxpayer is given a deadline to sign a “Certificate of Tax Position”, without knowing what information HMRC actually has, which is a formal declaration to three options:

  1. I need to bring my tax affairs up to date. I will declare all my UK tax irregularities using HMRC’s Worldwide Disclosure Facility;
  2. I do not have offshore income, assets or gains on which UK tax may be due;
  3. My tax affairs do not need updating. I do not have any additional tax to pay. I have declared all my offshore income, assets and gains which are taxable in the UK.

Options 2. and 3. are straightforward but serious – making an inaccurate (false) declaration is a criminal offence and carries a prison sentence.

Option 1. is more problematic and complicated. It is a red flag of tax irregularities – and if these are not swiftly declared via the Worldwide Disclosure Facility (WWF) then HMRC are bound to investigate.

Ignoring the letter or failing to reply by the deadline will also bring about further action.

Clearly, there are many pitfalls that go with getting such a letter. As well as those spelt out above, there is a danger that it could tempt the unwary or uninformed into an answer that they think will simply get rid of it – but will actually come back and bite them.

As well as the potential for criminal investigation and prosecution for any false statement, it would result in a higher penalty if the response was not completely accurate.

What should I do if I receive a Certificate of Tax Position letter?

Anyone who receives a Certificate of Tax Position letter should remember that HMRC has information which shows that they have tax irregularities. It is likely to be correct but even if it is not, HMRC will think it is and so it will need expert assistance to challenge it.

Obviously, any tax irregularities that have been flagged up will benefit from experienced tax investigation representation to deal with HMRC to disclose and agree on matters in a way that avoids criminal action, and limits so far as possible the tax and penalties involved.

If you have received a Certificate of Tax Position and require assistance in understanding more about what it entails or how to respond, speak to our specialists today.


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