Trust nudge letter – Introduction
If you’re a trustee who submitted a notice of intent to disclose undeclared tax liabilities but then failed to follow through, check your post. HMRC is writing to you, and the tone is less “friendly reminder” than “we haven’t forgotten.”
The latest salvo in HMRC’s ongoing “one-to-many” letter campaign targets trusts that started the voluntary disclosure process but didn’t complete it within the required 90-day window.
It’s a pointed reminder that beginning a disclosure is not the same as making one… and that HMRC’s patience with half-measures has distinct limits.
The Voluntary Disclosure Process
HMRC’s voluntary disclosure facilities have been a fixture of the tax compliance landscape for years.
The basic proposition is straightforward: if you have undeclared tax liabilities, you can come forward voluntarily, make a full disclosure, and benefit from reduced penalties compared to what you’d face if HMRC discovered the irregularities themselves.
The process operates in two stages.
First, the taxpayer (or trust) submits a notice of intent to disclose. This generates a Disclosure Reference Number (DRN) and a Payment Reference Number (PRN), and starts the clock ticking.
The taxpayer then has 90 days, or, in complex cases, up to 180 days if an extension is granted, to compile and submit their full disclosure, together with payment of the tax, interest, and penalties due.
The 90-day deadline is not merely advisory.
HMRC’s guidance makes clear that if a disclosure is not made within the required timeframe, the protective benefits of voluntary disclosure may be lost.
The taxpayer remains liable for the underlying tax, of course, but they may also forfeit the penalty mitigation that comes with genuine voluntary cooperation.
The Problem of Abandoned Disclosures
HMRC’s records show that a significant number of trusts submitted notices of intent but never followed through with complete disclosures. The reasons for this are no doubt varied:
- Complexity: Trust tax affairs can be labyrinthine, involving multiple beneficiaries, historic transactions, overseas assets, and interaction with inheritance tax, capital gains tax, and income tax. Compiling a complete disclosure within 90 days can be genuinely challenging.
- Cost: Professional fees for preparing a complex disclosure can be substantial. Some trustees may have baulked at the expense once they understood the scope of work involved.
- Cold feet: The reality of voluntarily admitting tax irregularities, and paying the consequences, may have proved more daunting in practice than in prospect.
- False starts: Some trusts may have submitted notices of intent prematurely, before properly assessing whether they actually had anything to disclose.
Whatever the reason, HMRC has noticed the pattern and is not inclined to let it slide.
The letters currently being sent invite trustees to take one of several actions: complete the disclosure, explain why no disclosure is now needed, or face the consequences of HMRC making its own enquiries.
The Content of the Letters
HMRC’s “one-to-many” campaign letters follow a familiar template. They begin by noting that the trust submitted a notice of intent to disclose but did not complete the disclosure within the required timeframe. The letter then sets out the options available:
Option 1: Complete the disclosure. If the trust still has tax liabilities to declare, the letter encourages trustees to make a full disclosure without further delay. HMRC notes that voluntary disclosure still offers advantages over discovery by investigation, though the penalty position may be less favourable than it would have been within the original 90-day window.
Option 2: Confirm no disclosure is needed. If circumstances have changed, for example, if the trust obtained professional advice indicating that no irregularity existed, the letter invites trustees to contact HMRC to close the matter.
Option 3: Do nothing. This is not explicitly offered as an “option,” but the letter makes clear what will happen: HMRC will open enquiries using its information powers, and any resulting assessment will carry higher penalties than would have applied to a voluntary disclosure.
The Trust Registration Dimension
The timing of this campaign is not coincidental.
The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 significantly expanded the scope of the Trust Registration Service (TRS), requiring most UK trusts, and many non-UK trusts with UK connections, to register with HMRC regardless of whether they have a tax liability.
This expansion gave HMRC vastly more visibility over the trust population than it previously enjoyed. Trusts that might once have operated below the radar are now on HMRC’s books, and the department is using that information to identify compliance risks.
A trust that registers for TRS, submits a notice of intent to disclose, and then goes silent is sending signals that HMRC’s risk algorithms are designed to detect.
Penalties and the Cost of Delay
For trusts that do have undeclared liabilities, the cost of further delay is significant. Under HMRC’s penalty framework, the key factors determining penalty levels include:
- Whether the disclosure is prompted or unprompted: A genuinely voluntary disclosure attracts lower penalties than one made after HMRC has already begun enquiries.
- The quality of the disclosure: Complete, accurate disclosures with full cooperation attract the maximum penalty reduction; incomplete or grudging disclosures do not.
- The behaviour involved: Penalties for deliberate concealment are higher than for careless errors.
For a careless offshore error, the penalty range is 0-30% for an unprompted disclosure, rising to 15-30% for a prompted one. For deliberate errors, the ranges jump to 20-70% (unprompted) or 35-70% (prompted).
For deliberate and concealed behaviour, the most serious category, penalties can reach 100-200% of the tax due, depending on the territory involved.
Trusts with offshore assets face additional jeopardy under the Requirement to Correct (RTC) provisions, which imposed a statutory deadline of 30 September 2018 for disclosing historic offshore non-compliance.
Failures to correct by that date attract a minimum 100% penalty on the tax due, making the stakes considerably higher for any trust with pre-RTC irregularities that remain undisclosed.
Practical Steps for Trustees
Trustees who receive one of these letters, or who are aware that they submitted a notice of intent without following through, should take immediate action:
1. Seek professional advice. Trust taxation is complex, and the interaction between income tax, CGT, and IHT can create traps for the unwary. Professional advice is essential both to determine what (if anything) needs to be disclosed and to present the disclosure in the most favourable light.
2. Respond to the letter. Ignoring HMRC correspondence is never advisable. Even if the ultimate conclusion is that no disclosure is needed, engaging with HMRC demonstrates good faith and may influence how the department approaches any future enquiry.
3. Gather records now. If a disclosure is required, the process will be smoother if records are assembled promptly. Trust documentation, deeds, accounts, beneficiary records, transaction histories, should be located and reviewed.
4. Consider the penalty position carefully. The difference between prompted and unprompted disclosure can be significant. Acting before HMRC opens a formal enquiry preserves more options than waiting to see what they do next.
The Broader Message
HMRC’s trust disclosure campaign is part of a wider pattern. The department has invested heavily in data analytics and risk profiling, and it increasingly uses “one-to-many” letters to encourage compliance without the resource-intensive process of opening individual enquiries.
The message is clear – we know more about you than you might think, and we’re watching.
For trusts, the era of benign obscurity is over.
Between TRS registration, expanded reporting requirements, and targeted compliance campaigns, HMRC’s visibility into trust affairs has never been greater.
Trustees who have skeletons in their cupboards would be well advised to exhume them voluntarily, before HMRC comes knocking with a search warrant and a calculator.