It’s been widely reported that HMRC have sent out letters to around 1,000 high net worth individuals who have been identified as having a lower than average effective rate of tax in 2011/12.
Are they right?
In all likeliness, no! HMRC have produced these letters by comparing the effective rate of tax paid by individuals, with a similar income level. However it’s just not possible to take such a simple approach to the tax affairs of high net worth individuals. There are numerous reasons why one individual’s tax liability may be much lower that another’s, such as loss relief claims, tax relief claimed on pension contributions or charitable donations, amongst others.
What’s the next step?
There is no doubt that receiving this letter will cause some individuals undue worry. The wording of the letter is a little intimidating, with the last paragraph re-iterating the fact that there will be serious consequences for not paying the correct amount of tax. However, it is important to bear in mind that this is not an investigation and receiving the letter does not mean that your tax return was wrong.
There is no obligation for the individual to reply to the letter but we would advise against ignoring the letter. We can prepare a response to HMRC on your behalf, explaining the reasons why your effective rate is lower than expected, and this should bring the matter to a close.