HMRC ‘nudge letters’: why you should take a proactive approach

Author: James Cordiner, Tax Investigations Manager

‘One to many’ letters are a more cost-effective way for HMRC to follow up on the vast amount of data it holds, compared to opening a compliance check into the returns of every individual who receives one. They are not based on any statutory power available to HMRC, and instead typically rely on the taxpayer taking action themselves, an approach informed by behavioural science.

Recent recipients of nudge letters have included:

• People who may have received partnership income, or offshore income or gains
• People who may have disposed of residential property or cryptoassets
• People who have told HMRC that they are domiciled outside the UK
• People who have made a claim for foreign tax credit relief
• Persons of Significant Control (PSCs) who may have disposed of shares
• Claimants of CJRS (furlough) and SEISS (self-employed income support) payments during the pandemic

The prudent approach

There are various reasons why HMRC may have issued a nudge letter, so there’s no need to panic if your client receives one – it does not necessarily mean there’s an issue.

You should, however, take the opportunity to review your client’s tax affairs fully. If you find them to be in order, no further action is needed, but it is prudent to respond to the letter making it clear to HMRC that you’ve reviewed the situation and found no issues.

If you do become aware of any issues, there are various ways to reach a resolution, including amending the relevant tax return, or making a disclosure to HMRC using one of the services available. This proactive approach is much more likely to result in lower or no penalties than waiting for a more formal approach from HMRC.

Markel Tax has extensive experience of HMRC’s range of compliance activity.

For more information on how we can help, call us on 0333 305 3667 or email Taxinvestigationsuk@markel.com.