Taking a proactive approach to HMRC ‘nudge’ letters
‘Nudge’ letters are a more cost-efficient way for HMRC to follow up on the vast amount of data it holds, compared to opening a compliance check into the returns of every individual who receives one. They are not based on any statutory power available to HMRC, but instead typically rely on the taxpayer taking action themselves - an approach informed by behavioural science.
Recipients of nudge letters in the last few years have included:
- Individuals who may have disposed of residential property or cryptoassets
- Individuals who may have received partnership income, or offshore income or gains
- Individuals who may have income from online activities
- Individuals who have told HMRC that they are domiciled outside the UK
- Individuals who have made a claim for foreign tax credit relief
- Directors/Employees who may have been in receipt of Benefit-in-kind (BIKs)
- Persons of Significant Control (PSCs) who may have disposed of shares
- Claimants of CJRS (furlough) and SEISS (self-employed income support) payments during the pandemic
HMRC have also used this approach in the ongoing targeted campaign of checking the validity of R&D claims.
The prudent approach
There are various reasons why HMRC may have issued a nudge letter, so there’s no need to panic if your client receives one – it does not necessarily mean there’s an issue.
You should, however, take the opportunity to review your client’s tax affairs fully. If you find them to be in order, no further action is needed, but it is prudent to respond to the letter making it clear to HMRC that you’ve reviewed the situation and found no issues that need to be addressed.
If you do become aware of any issues, there are various ways to reach a resolution, including amending the relevant tax return, or making a disclosure to HMRC using one of the services available. This proactive approach is much more likely to result in lower or no penalties than waiting for a more formal approach from HMRC.
This blog is one of a series of articles from our commercial partners. The views expressed are those of the author and not necessarily those of ICAS.
Markel Tax has extensive experience of HMRC’s range of compliance activity – sign up for their webinar on HMRC enquiries on Tuesday 13 June here.