HMRC nudge letters guidance

HMRC nudge letters guidance

Hayley Ives, Director, Tax Resolutions
HMRC nudge letters guidance

Most tax professionals are well aware of HMRC’s tactics to check the accuracy of taxpayers’ affairs via its 'one-to-many' mailings, often referred to as 'nudge letters'. HMRC favours this approach because it allows the department to contact vast numbers of taxpayers with relatively minimal effort.

We are aware of at least 16 recent nudge letter campaigns, as follows:

  1. Overseas assets, income or gains - omissions
  2. Annual Tax on Enveloped Dwellings – non-filing
  3. Benefit In Kind - omissions
  4. Capital Gains Tax (CGT) - residential property - errors
  5. CGT - residential property – omissions
  6. Investment income - omissions
  7. Outstanding Self-Assessment tax returns
  8. Pay and Tax - discrepancies
  9. Deemed Domicile – original version
  10. Deemed Domicile – updated version
  11. Double Tax Agreement relief
  12. Foreign Tax Credit relief
  13. Overseas Workday relief
  14. Persons of Significant Control
  15. Statutory Residence Test
  16. Venture Capital Trust relief

The items listed at 1 to 10 above have been / will be sent to taxpayers where HMRC has undertaken a risk assessment and identified a potential loss of tax. The items at 11 to 16 above aim to educate relevant taxpayers about complex areas of the tax system where mistakes are often made. Whilst a number of the letters are being copied to taxpayers’ agents, some of them are not, hence taxpayers should be encouraged to share the letters with their agents.

Upon receipt of a nudge letter, the burden shifts to the taxpayer to take action and review their historic affairs, which results in a variety of outcomes:

  • it identifies the need to make a disclosure to HMRC
  • it confirms that everything is in order and a disclosure is unnecessary
  • complete inaction by the taxpayer.

If HMRC issues a letter in instances where a loss of tax is suspected, inaction from the taxpayer will undoubtedly lead to follow up questions by HMRC. The educational letters do not necessarily require a response to be sent to HMRC; however, taxpayers are encouraged to review their affairs, because HMRC will come down harder on taxpayers who received fair warning that they ought to do so if tax is later found to be underpaid.

What action should you take?

Our advice can be summarised as follows:

  • The taxpayer needs to check their position and satisfy themselves that, to the best of their knowledge and belief, their tax affairs are in order. Tax rules are complex and so further exploration is often required alongside professional advice.
  • If there is nothing to correct, a response can be sent to HMRC confirming this. If HMRC has issued a certificate of tax position alongside the nudge letter, we strongly recommend it is not completed, because it excludes a number of safeguards. The certificate is not statutory and there is no requirement to complete it, so instead, an appropriately worded letter can be sent in its place.
  • If there is an issue to resolve, careful consideration of the taxpayer’s situation is needed to establish the best disclosure method as well as the number of years that HMRC is still in time to assess. A disclosure can be made via the Worldwide Disclosure Facility, the Let Property Campaign or any similar Digital Disclosure Service. It should be noted that if deliberate omissions have been made and immunity from prosecution is sought, the Contractual Disclosure Facility is the preferred route.

How we can help

If a disclosure is needed, Crowe’s Tax Resolutions specialists have worked with numerous taxpayers / their agents to bring historic tax issues up to date. If you choose to work with us, you can expect that we will:

  • review the background of your case and identify all issues that need to be disclosed
  • advise on the most appropriate steps to ensure a full disclosure is made to HMRC to reduce the possibility of HMRC asking follow up questions
  • calculate the underpaid tax whilst ensuring all legitimate claims for tax relief / allowances are taken into account
  • act as a buffer between you and HMRC so that you do not need to speak directly with HMRC
  • ensure that HMRC does not overstep the mark, for example, by making requests for data that HMRC is not entitled to
  • advise you on the likely penalty position and consider all mitigating factors to reduce penalties as low as possible
  • liaise with third parties to obtain the data that is relevant to your disclosure
  • be able to assist you with your ongoing tax returns if you wish to appoint us as your agent.

Since the beginning of 2019, our statistics show that, whilst it is not always possible to mitigate penalties altogether, we have helped our clients to reduce penalties across the board to a fraction of the average maximum penalty our clients initially faced as a percentage of the underpaid tax. We have also successfully argued reasonable excuse on numerous occasions, which has resulted in HMRC accepting that a 0% penalty is due in appropriate cases.

Our team is accessible and approachable, and ready to answer your questions, giving you the confidence you need when dealing with a sensitive issue such as an HMRC enquiry or other tax dispute.

Contact us

Sean Wakeman
Sean Wakeman
Partner, Head of Tax Resolutions
John Cassidy
John Cassidy
Partner, Tax Resolutions