Euro Pacific Bank - What to do if you receive a 'nudge' from HMRC

Last week, Peter Schiff, the owner of Euro Pacific Bank based in Puerto Rico, reached a settlement with authorities, resulting in the liquidation of the bank, together with the return of $66.7m in deposits and payment of a $300,000 fine. This is the culmination of an investigation opened into the bank in 2020 by the Joint Chiefs of Global Tax Enforcement (J5), followed by a 'cease and desist' order issued by the Office of the Commissioner of Financial Institutions in Puerto Rico.

As a consequence, HMRC have begun to send 'nudge' letters to customers of Euro Pacific. Below, we look to answer questions you may be asking yourself if you are a customer of Euro Pacific and / or are a recipient of an HMRC 'nudge'.

What is a 'nudge' letter?

A 'nudge' letter describes a letter sent by HMRC to a taxpayer, encouraging a voluntary review of its tax affairs and where appropriate, voluntary disclosure via the Worldwide Disclosure Facility of any tax irregularities identified. These are not specific to the concerns regarding Euro Pacific and can be issued in respect of any potential tax issue.

What is the Worldwide Disclosure Facility?

The Worldwide Disclosure Facility (“WDF”) opened in September 2016, following agreement by over 100 countries to share information to increase international tax transparency. The WDF can be used by anybody who wishes to make a voluntary disclosure regarding a UK tax liability that concerns an offshore issue, including individuals and corporate bodies. Examples may include unpaid tax arising from assets held outside of the UK, including funds transferred out of the UK to an overseas territory.

How is a voluntary disclosure made?

The disclosure should be made online via HMRC's Digital Disclosure Service. You will need to provide your personal details, including your Unique Taxpayer Reference, the details of any agent you have instructed on your behalf, in order to notify HMRC of your intention to disclose and to then receive a unique Disclosure Reference Number.Once you have done this, you will then have up to 90 days within which to inform HMRC of the full details of the disclosure, including a calculation of your total liability and whether or not the disclosure was prompted following receipt of a 'nudge' letter. As part of the disclosure, you will also complete a 'self-assessment' of your behaviour regarding the disclosure and whether or not your failure to properly account for tax was deliberate or you have a reasonable excuse for your omission. You will also need to select the tax years to which the disclosure applies.When submitting the disclosure, you will be required to confirm your understanding that you are making a full disclosure concerning your tax liabilities and that any false disclosure may lead to prosecution by HMRC.

What happens if more time is needed to make a voluntary disclosure?

If the disclosure you intend to make is particularly complex and the 90-day period for submitting your disclosure is insufficient, you can contact HMRC and request a further 90-day extension of time.

If, due to the complexity of the issues, you are unsure of how the disclosure would be treated for tax purposes, you can seek guidance from HMRC via its non-statutory clearance process. HMRC will then provide you with written advice on how to proceed. Upon receipt of this, you will then have 90 days to complete your disclosure.

What happens after a voluntary disclosure is made?

HMRC may request further information from you in order to substantiate your disclosure. If the disclosure is correct and full co-operation is provided to HMRC, higher penalties will be avoided and HMRC will not look to publish details of the disclosure you have made.However, if HMRC believe that there are inaccuracies or an unwillingness to assist further, it can look to impose more severe penalties, publish your details online and / or instigate civil or criminal proceedings against you. It must be borne in mind that in making a voluntary disclosure, HMRC offers no guarantee that formal proceedings will not be launched in any event. This will be dependent upon a number of factors, such as whether you are already under investigation by HMRC or whether the conduct involved is of particular gravity.

How is the tax liability settled?

When submitting the disclosure, it is a requirement of the facility that you also make payment of the tax liability.

If you are unable to make payment in full at that time and require time to pay, you would need to liaise with HMRC before submitting the disclosure in order to come to a payment arrangement.

Should I make a voluntary disclosure?

If you are considering making a voluntary disclosure, it is highly recommended that you seek independent tax / legal advice first. This is to ensure that you fully understand the disclosure process and what the ramifications of proceeding would be. Given the serious consequences of making an inaccurate disclosure, it is vital that you calculate your liabilities correctly, which can be a complex task given that as part of this, you will also need to confirm the amount of any applicable interest and penalties.