HMRC ‘nudge' letters: How to respond
Steve Price, Senior Tax Consultant at Markel Tax, considers how to respond to HMRC’s Coronavirus Job Retention Scheme (CJRS) and Self-Employment Income Support Scheme (SEISS) ‘nudge’ letters.
Over the past few years HMRC has made increasing use of so-called ‘nudge’ letters to aid its compliance efforts. Letters are issued en-bloc to targeted groups suggesting that taxpayers check certain aspects of their tax affairs and correct them if needed.
Why is the use of ‘nudge’ letters increasing?
The cost of this type of initiative is minimal to HMRC, so even if only a small number of taxpayers respond with amended returns or disclosures, it's still a very cost-effective tool.
It also provides a ready source of future compliance checks within the targeted group, and whilst HMRC may not have the resources to follow-up everyone in that group, those deemed to provide the greatest risk can expect further contact.
Is it best to respond?
The recent spate of CJRS and SEISS ‘nudge’ letters may at first seem to be merely a repeat of earlier campaigns but the consequences of not handling them correctly are potentially much more severe than ever before.
The common view is that it is much better to respond to this type of letter than to simply ignore it. To ignore it is to gamble on whether or not HMRC decides to follow up the initial letter in a given case.
Whilst this may well be the option that some taxpayers would wish to take, they must appreciate that if HMRC does indeed make further contact it will inevitably take a much tougher view of behaviours which will lead to much higher penalties.
Responding to the letter seems to be a simple choice of confirming that errors have been made and correcting them, or alternatively providing confirmation that all is in order. However, both of these options are fraught with danger if not handled correctly; the key being the extent of the checks carried out.
Double-check the original claim
Taxpayers may well believe that because they have already been through the claims process their original claims must be correct, particularly if an agent has dealt with CJRS claims on their behalf or HMRC has indicated that they are eligible to claim the SEISS grant.
The tendency may then be to confirm to HMRC that all is in order without fully checking the original claims or not checking them at all. Even if cursory checks reveal errors that need to be corrected, there may be a view taken not to look any deeper.
The reality is that the CJRS and SEISS schemes were introduced out of urgent necessity with the original legislation, and HMRC’s interpretation of it lacking the detail needed to cover many of the issues arising at the time. This was of course addressed by a constant stream of updates issued over the following months to clarify numerous areas of doubt.
As a consequence, many of the early claims were based on incomplete information and heavy interpretation which in hindsight may not be correct. Many clients relied on their agents to deal with CJRS claims but in those early days agents were struggling along with everyone else to interpret the legislation correctly and were under enormous pressure to lodge huge numbers of claims within a very short timescale. This pressure is likely to have led to errors in some cases, together with the fact that the claims were only as accurate as the information provided by the client in the first place.
There was also a general belief that if individuals were invited by HMRC to claim the SEISS grant then they must have been eligible. However, we now know that this was not the case as those invitations were intended to alert individuals that they may be eligible but individuals actually needed to fully check the eligibility criteria themselves.
All of this contributes to a scenario where many claims made in good faith may not actually be correct. The nudge letters provide an opportunity for claimants to thoroughly check all claims back to March 2020, reflect upon their interpretation of the prevailing conditions/guidelines at the time each claim was made and decide if they are robust enough to withstand the scrutiny of an HMRC compliance check.
How claimants can determine their position
HMRC will take responses to their letters seriously. If claimants confirm that they have reviewed the position and found errors, or alternatively that the original claims are correct, they need to be absolutely certain of their position. That certainty can only be brought about by knowing and evidencing that:
- They have thoroughly checked all CJRS claims made themselves by reference to the guidelines in place at the time.
- They have thoroughly checked that any information provided to the agent making the claim on their behalf is absolutely correct.
- The adviser has thoroughly checked the claims made on their behalf and provided written confirmation of the outcome.
- They have thoroughly checked eligibility criteria for all SEISS claims made by reference to the guidelines in place at the time.
If statements are made without this level of checking, HMRC will not be so tolerant of errors found later and will likely invoke much heavier penalties as a result. This will be based on HMRC’s belief that the claimant either couldn’t be bothered to check previous claims despite HMRC’s offer or did check them and found errors which they chose not to report.
The over-riding message must be that anyone receiving this type of ‘nudge’ letter should thoroughly check all previous claims and respond to HMRC as appropriate in order to avoid more serious problems further down the line.
About Markel Tax
Markel Tax is the UK’s largest independent tax consultancy and adviser to the accountancy profession. With the reputation of delivering the highest service standards within the fee protection insurance market, Markel Tax is the trusted partner for over 2,500 UK accountancy practices.
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.