What is a Nudge Letter from HMRC?

Published: 10th August 2021

HMRC reminder letter to review tax liabilities

HMRC uses nudge letters to prompt taxpayers to review their tax affairs. This is with a view to closing the gap between the tax expected by HMRC, and the amount they actually receive. Letters are typically sent out en‐masse as a campaign and relate to specific areas of tax, such as overseas income or disposal of property.

The tax body’s computer system identifies where anomalies may lie within an individual’s tax affairs, and provides the informational basis for nudge letter campaigns. If data suggests a taxpayer has failed to complete their tax return accurately, or a potential tax loss is identified, nudge letters are an inexpensive way for HMRC to follow up without opening a formal tax investigation. 

Nudge letters can be used to encourage action by a taxpayer, i.e. reviewing their tax affairs. They are also used as an educational tool in relation to particularly complex areas of tax, where additional care needs to be taken.

If you receive a nudge letter it does not necessarily mean you have made an error on your tax return, but you need to ensure that you respond correctly to HMRC.

What should you do if you receive a nudge letter from HMRC?

If you receive a nudge letter it is important to obtain professional advice before returning any information to HMRC, as it could lead to further investigations into your tax affairs, or indeed, financial penalties.

Begbies Traynor Group can provide the fast and reliable advice you need if you have received a nudge letter from HMRC. We have extensive experience of dealing with the tax body on this issue, and can help you determine the most appropriate response.

This may be to make a disclosure to HMRC following a review, or confirm that your tax affairs are in order and that no disclosure is necessary. A Certificate of Tax Position will accompany the nudge letter, and this must be completed with great care.

What are the implications of HMRC nudge letters?

Burden of disclosure placed on the individual
By sending out a nudge letter, HMRC is effectively placing the burden of disclosure and the need for any action, onto you as the taxpayer. In cases where the letter has been sent because HMRC believes a tax shortfall exists, you must establish whether you need to make a disclosure.

Nudge letters sent for educational purposes also have implications, however, and should not be regarded as less important. They serve as an unofficial warning from the tax body that you need to ensure your tax affairs are in order.

If HMRC has further cause to investigate in relation to the subject matter of the letter, they may take more stringent action against you if you have already received this ‘warning’ but decided not to take action.

False statements and the Certificate of Tax Position
If a disclosure is not made when one is needed, HMRC can open a tax investigation relating to specific tax years, or may impose penalties for lost tax revenue following a failure to disclose.

If false statements are made on the Certificate of Tax Position, criminal proceedings may also be a possibility. A key issue is that the time period covered by the Certificate of Tax Position is unlimited, and HMRC may decide that any significant omissions from prior tax returns are cause for further action.

It is concerning to receive a nudge letter from HMRC, as it could represent a warning of considerable problems ahead. Our partner‐led team at Begbies Traynor Group can provide trustworthy advice on how to proceed, however, and will support you in your dealings with HMRC.

Please get in touch to arrange a free, same‐day consultation. We operate an extensive network of offices around the country, so you are never far away from professional assistance.

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