Look out for the latest ‘nudge’ letters from HMRC
HMRC is having a busy autumn, issuing a series of ‘nudge’ letters to prompt taxpayers to take action to correct potential errors in returns.
In recent years HMRC has made extensive use of ‘nudge’ letters to taxpayers where it thinks there may be something wrong with their returns – and wants to ‘nudge’ them to check and take appropriate action where necessary.
In the past not all letters have been well-targeted and some have caused problems for agents (particularly where agents have not been copied in). HMRC has helpfully given briefings to professional bodies on a series of letters being issued in October and November. These indicate that the approach has improved, agents will be in the loop - and HMRC is also interested in feedback.
Here is a summary of the letters you/your clients may be seeing. Further letters are expected in the next few weeks.
Benefit in Kind Discrepancies
Letters sent to agents (or direct to unrepresented taxpayers) where HMRC has identified potential discrepancies between information provided by employers and details on the individuals’ tax returns. Recipients are asked to check the amounts declared on the 2018/19 returns and correct any errors identified.
Pay and Tax Discrepancies
Letters sent to agents (or direct to unrepresented taxpayers) where HMRC has received pay and tax details from employers and the information does not match the information on the individuals’ 2018/19 self assessment returns. Recipients are asked to check the amounts declared on the 2018/19 returns and correct any errors identified.
Omitted Capital Gains Tax
These letters will be sent to taxpayers and copied to agents (if a 64-8 is in place) where information available to HMRC suggests that properties were disposed of which may have given rise to a CGT charge in 2018/19, but nothing has been declared to HMRC. Where a return was filed the letter will encourage the taxpayer to amend the return if necessary. Where no return has been filed the letter encourages the making of a disclosure if any CGT is due.
This is an educational campaign directed at taxpayers HMRC believes may have disposed of shares in an unlisted company during the sale of the company and may, as part of that sale, have received deferred consideration. The letter signposts relevant helpsheets, HMRC guidance and relevant professional support to help in completing returns. There is no suggestion of any errors/omissions in returns – it is a prompt to take action before submission. Agents will receive a copy of the letter.
Letters sent to agents – or direct to unrepresented taxpayers – where HMRC has received information from financial institutions and that information does not match information on the SA return. Potential discrepancies on the 2018/19 return are flagged because amendments may be required but also to assist in getting the 19/20 return right.
Letters to corporates which appear to have purchased a dwelling/residential property worth £500,000 or more from 1 April 2020 and have not filed an ATED return. The letter will advise that HMRC is aware of the purchase and that a return must be filed. If the corporate believes they are not liable to ATED they will need to explain why.
Persons of significant control
Another educational letter to individuals (copied to authorised agents) named as a ‘Person of Significant Control’ of a mid-sized business. The letters will highlight some common errors, invite individuals to review their tax affairs, in case there is anything they have overlooked - and, if necessary, amend their 2018/19 tax return. Any additional income should also be included on the 2019/20 return. Where the taxpayer has not registered for self assessment the letter asks them to consider whether they need to do so and gives some examples where registration would be required.
Residential property capital gains tax
Letters will be issued to taxpayers (copied to agents) where HMRC has identified potential errors around the declaration of residential property disposals for CGT purposes – specifically where it appears that a residential property disposal has been included in the ‘Other properties, assets and gains’ section of the 2018/19 self assessment return, attracting a lower rate of CGT. The letters request that the property disposals shown on the 2018/19 return are reviewed – and amended (if necessary) before 31 January 2021.
Feedback to HMRC
HMRC has invited feedback on the letters and the impact on recipients. Please send ICAS your feedback and comments by emailing firstname.lastname@example.org. We will collate and pass on to HMRC.