The HMRC does not have the staff to investigate all the offshore tip-offs it gets, after being swamped with a staggering 5.7 million pieces of information about overseas bank accounts held by three million British citizens.
The information is coming from 100 countries under common reporting standards (CRS) agreed by the international Organisation for Economic Co-operation and Development. The standards are designed to stop tax evasion, or avoidance, by making governments aware of overseas money held by their citizens.
However, HM Revenue & Customs (HMRC) does not have enough people to follow up on the information, according to the tax consultancy BDO, so is instead sending out a series of "nudge" letters to the people named asking them to send details of their financial affairs in an attempt to uncover incidents of tax evasion, The Times first reported.
HMRC has come under pressure to more actively investigate taxpayers with hidden offshore assets since the 2016 Panama Papers scandal. There is currently an open parliamentary inquiry into whether HMRC is sufficiently able to tackle tax evasion and avoidance.
The UK tax office made 540 requests to overseas authorities for information on UK taxpayers last year, an increase of 24% on the previous year, as it intensifies its crackdown on hidden offshore assets, says Pinsent Masons, the international law firm.
Pinsent Masons says that HMRC is increasing its investigations overseas into taxpayers it believes are hiding assets. Investigations can lead to penalties of up to 200% of the tax HMRC believes is owed.
UK investors in offshore funds are coming under increasing scrutiny by the tax authorities. HMRC believes there is a significant group of UK investors misreporting their income and gains from investments in offshore funds, and, as a consequence, their overall UK tax liability.
HMRC have begun to send out compliance letters to tenants of residential property that they believe is owned by an overseas company or trust (called a non-resident corporate landlord). The purpose of the letter is to enable HMRC to gather information to make sure that the landlord is paying the correct amount of tax.
HMRC's approach to hidden offshore assets is laid out in its ‘No Safe Havens' strategy, which was launched in March this year. In this strategy document, HMRC says it will use criminal investigations to send a strong deterrent message to taxpayers.