Top 10 things to consider if you get a nudge letter from HMRC and need to make a disclosure

One of HMRC’s tools to tackle non-compliance is the use of one to many approaches or so called “nudge letters”.

HMRC regularly pinpoints areas where issues commonly arise, then writes out to people that might be affected. The intention is to invite people to check their affairs and take proactive action if needed, putting the ball in the taxpayer’s court and using less HMRC resources.

What are some things for nudge letter recipients to consider?

1. Do not bury your head in the sand. The letters from HMRC are targeted and so if there is an issue to be ironed out, it should be addressed head-on. Ignoring the letter could lead to HMRC opening an investigation and higher penalties for not co-operating.
2. If the letter asks you to sign and return a certificate of tax position, you should not sign it. The certificates are not statutory and there is no benefit in signing one.
3. Consider if the nudge letter is educational or if it indicates HMRC may have identified a problem. The educational letters are sent to people who have reported certain transactions where the rules are complex and mistakes often get made; these do not require a response or action unless there is an inaccuracy. The “problem” nudge letters are sent when HMRC has checked the individual’s records and thinks they have identified a discrepancy. These letters require action, either to correct the problem or to explain why HMRC is mistaken.
4. Consider the subject of the nudge letter and whether something has in fact gone amiss. For example, if the letter refers to your “offshore income, gains and assets”, this indicates HMRC has received information under the Common Reporting Standard showing that you have overseas interests. Are you confident that you have reported foreign sources on your returns as appropriate? If you cannot pinpoint what the letter is referring to, it is possible to ask HMRC for more information.
5. If you need to make a correction, consider the most appropriate way to bring your affairs up to date. There is no one size fits all approach. The let property campaign or the worldwide disclosure facility might be suitable depending on the subject matter. However, if deliberate omissions have been made, the contractual disclosure facility should be considered, as this is the only way to secure immunity from prosecution for tax fraud.
6. If there are errors to report, it is necessary to consider what went wrong and present this to HMRC. This will determine how many years HMRC can look back and the penalty loadings you can expect. HMRC might disagree with you and ask for supporting evidence, but this starts the process of bringing your affairs up to date.
7. It is important to make a full disclosure of all tax issues in the relevant period. For example, if HMRC tells you they have received information indicating you had overseas dividends in 2021, it does not necessarily mean you only need to report the dividend for that year if, say, the shares have been owned for many years. Cherry-picking what is sent to HMRC will at best prolong the length of time it takes to settle the case and at worst result in an accusation of deliberate omissions that could lead to prosecution.
8. Be careful if you use the digital disclosure service to correct your affairs.  There are a number of questions that must be answered which are quite technical in nature and might be misinterpreted. It is usually appropriate to submit a report alongside the forms to ensure a full disclosure is being made.
9. Consider whether it is possible to seek a reduction in penalties. All of the disclosure routes that end with a contract settlement require the taxpayer to make an offer of the tax, interest and penalty they believe is payable in full and final settlement of the historic issues. Consider if penalty suspension might apply, or if penalties can be removed altogether on the grounds of reasonable excuse.

10. It can be a false economy to submit a disclosure without support from a tax resolutions professional who is well versed in considering everything above.

For more information, or to discuss your position, please get in touch with a member of Crowe’s Tax Resolutions team or your usual Crowe contact.