HMRC ‘nudge’ letters are here to stay

HMRC’s ‘one-to-many’ approaches or ‘nudge letter’ campaigns have been with us for a number of years now. It is difficult to remember a time when this type of activity did not exist.

We can see why HMRC favours the approach of designing a single letter to be sent out to multiple taxpayers. It has proven to be a cost-effective way of reaching a large population of taxpayers and encouraging them to take proactive action using relatively low resources. 

Put another way, it puts the ball in the taxpayer’s court to review their affairs and make a disclosure if needed, often using HMRC’s digital disclosure service. The development of the digital disclosure service was driven by HMRC’s desire to process numerous disclosures in an efficient way; however, another route known as the Contractual Disclosure Facility would be more appropriate in cases where there have been deliberate understatements as this is the only route whereby immunity from prosecution can apply. 

The risk of ignoring a nudge letter would be a HMRC investigation and higher penalties in the event there was indeed a tax problem to resolve; at the very worst, taxpayers could be prosecuted for deliberate understatements. 

Tax professionals are routinely informed about new areas to be targeted by HMRC via updates from the professional bodies and so we sometimes wait with great anticipation to get a ‘real life’ query about the latest nudge campaign. However, some areas targeted by HMRC are extremely unusual and impact on such a tiny population (less than 100 taxpayers in some cases!) that we cannot claim to have dealt with every single type of nudge letter in real life.

Nonetheless, over the years, Crowe’s Tax Resolutions group has dealt with numerous examples of HMRC nudges and helped our clients resolve their historic affairs. 

Some of these nudges have been issued in relation to an actual tax issue that has been identified as a result of information received from third-parties (e.g., from Land Registry and Common Reporting Standard data), although we note that HMRC’s targeting can sometimes be inaccurate. Other nudges are simply educational and issued to taxpayers about common errors made in certain areas of the tax code to highlight that advice might be needed to reduce mistakes.

Some nudges can also lead to a great deal of criticism in professional circles.  The most striking example was nudge letters issued to suspected users of Electronic Sales Suppression tools, which amounts to tax fraud. These taxpayers were invited to use an online form to make a disclosure to HMRC. However, this route offered no immunity from prosecution (only the Contractual Disclosure Facility does, as noted above), so this was not the best advice to recipients. 

It is always good practice to seek professional advice if you are in receipt of a nudge letter from HMRC. We can help break down the steps and advise on what action needs to be taken.

For further information, get in touch with a member of Crowe’s Tax Resolutions team or your usual Crowe contact.