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. It is difficult to remember a time when this type of activity did not exist.

HMRC favours the approach of issuing a single letter to multiple taxpayers, because 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 minimal resources. 

This type of activity 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. This type of approach does not give HMRC any extra statutory powers, so advice should be taken from a tax resolutions expert about how to respond, as getting it wrong could ultimately result in higher penalties.

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 helped clients in receipt of various HMRC nudges to 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, for example:    

• nudge letters issued to suspected users of Electronic Sales Suppression tools, which amounts to tax fraud, without mention of using the CDF. Instead, these taxpayers were invited to use an online form to make a disclosure to HMRC, which offers no immunity from prosecution (unlike the CDF), hence this is not the best advice to recipients. 
• nudge letters issued to landlords stating that replacement boilers are not deductible expenses for income tax purposes. HMRC later had to write to the earlier recipients apologising for the error and correcting the mistake.

This goes to show why it is advisable 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.