HMRC nudge letters guidance

HMRC receives vast amounts of data from multiple sources, which is used by the department to develop 'one-to-many' approaches or 'nudge' letter campaigns. These approaches are favoured because they enable officers to target specific segments of the tax paying (or non-tax paying) public using minimal resources.

Taskforces experiment with different delivery methods, different audiences and tone of messaging to ascertain what works best and streamline future compliance activity.

People are usually alarmed to be on HMRC’s radar when they receive such a letter. It is recommended that such approaches are not completely ignored, because failure to take appropriate steps could result in worse outcomes, e.g. higher penalties. 

Types of nudges

There are two main types of nudges:

1. Data driven - a risk assessment has identified a potential loss of tax that needs to be resolved by the recipient.
2. Educational - to educate certain people about complex areas of the tax system where mistakes are often made, aimed at preventing similar mistakes within the population.

Upon receipt of a nudge letter, the burden arguably shifts to the taxpayer to be proactive and review their historic affairs, although the outcomes realistically are:

• something needs to be corrected
• everything is in order and a disclosure is unnecessary
• complete inaction by the taxpayer (not recommended)!

Complete inaction by a recipient will undoubtedly lead to follow up questions by HMRC and higher penalties in the event tax has been underpaid.

The educational letters do not necessarily require a response to be sent to HMRC. However, taxpayers are encouraged to carefully 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?

• If HMRC has issued a certificate of tax position alongside the nudge letter, we strongly recommend you do not complete it. The certificate is not statutory and there is no requirement to complete it.
• Double check the position. Tax rules are complex and so further exploration is often required alongside professional advice.
• If there is nothing to correct, a letter can be sent to HMRC confirming this to prevent HMRC chasing you.
• If there is an issue to resolve, careful consideration of your situation is needed. This will help ascertain the best disclosure method as well as the number of years that HMRC can 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 needed, the Contractual Disclosure Facility is the preferred route.

How we can help

If a certificate of tax position has been issued alongside the nudge letter, we strongly recommend it is not completed. The certificate is not statutory and there is no requirement to complete it.

Tax rules are complex and so further exploration is often required alongside professional advice to review whether a correction is needed.

If there is an issue to resolve, consideration of the most appropriate disclosure method is vital. For example, if deliberate omissions have been made, the Contractual Disclosure Facility should be considered in order to prevent a criminal investigation being pursued.

Crowe’s Tax Resolutions specialists have worked with numerous taxpayers (and their agents) to bring historic tax issues up-to-date.

If you appoint us, 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 while 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.

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.

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