22nd July 2022
We have recently seen an increase in HMRC issuing ‘One to Many’ communications, commonly known as ‘nudge letters’, in addition to the normal compliance activity. Nudge letters usually state that HMRC holds information on the individual and are used to encourage taxpayers to review their tax affairs. Should you have any matters to disclose to HMRC, we strongly recommend approaching them before such communication is received.
HMRC has more information than ever at its fingertips, coming from a vast number of sources, but does not have the resources to open a full enquiry into each individual it identifies as a risk. Nudge letters provide a cost-effective solution to communicate with a large number of taxpayers. Our experience has shown that there can be inaccuracies with some of the information held by HMRC, or it has been interpreted incorrectly.
The nudge letters issued to date have covered a wide range of topics including:
- Overseas income and gains
- Coronavirus Job Retention Scheme
- Research and Development
- Annual Tax on Enveloped Dwellings (ATED)
- Capital Gains Tax (CGT_ on property disposals)
- CGT on deferred consideration on business disposals
- Disposal of unlisted shares
- Partnership discrepancies
The letters issued previously relate either to where HMRC has identified a potential loss of tax or, more broadly, are an educational exercise. The communication can be delivered by letter or digital means including personal tax accounts, emails or SMS. It is worth noting that agents do not always receive a copy of these communications from HMRC. The communications are aimed at encouraging taxpayers to review their own tax affairs and voluntarily correct any errors or omissions, in many cases containing instructions on how to do so.
It is important to note that a nudge letter is not a statutory enquiry into a taxpayer’s affairs, however these letters should not be ignored and appropriate action must be taken. This does not mean signing and sending the requested certificate to HMRC, there is no statutory requirement to do so. If HMRC subsequently opens an enquiry and finds an error, failure to take action following receipt of a nudge letter could lead to higher penalties being charged.
Disclosures and penalties
If you have found a mistake in your filings to HMRC, disclosing the error or omission before HMRC send a nudge letter or open an enquiry will lead to the most favourable outcome. Following receipt of a nudge letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes. Prompted penalty rates are higher than those that apply to unprompted penalties. For example, the maximum prompted penalty for an offshore omission is 200%. Completely voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error and broadly the length of time interacting with HMRC will be significantly shorter, as compared to a full investigation.
A professional tax advisor can guide a taxpayer through the disclosure process and advise, where applicable, the penalty mitigation available. We recommend taxpayers immediately seek professional advice following receipt of a HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.
At haysmacintyre we have a wealth of experience in making successful disclosures to HMRC. We have a proven track record in obtaining the most favourable result for clients, allowing them to draw a line under the matter and move forward without further intrusion from HMRC.
Should you require any professional advice please contact Danielle Ford, Head of Tax Disputes and Resolutions.