Over the last couple of years HM Revenue & Customs (HMRC) have issued a number ‘One to Many’ communications, commonly known as ‘nudge letters’. Nudge letters are used to encourage taxpayers to review their tax affairs. The nudge letters issued to date have covered a wide range of topics including:
- Overseas income and gains
- Research & Development,
- Annual Tax on Enveloped Dwellings (ATED),
- CGT on property disposals,
- CGT on deferred consideration on business disposals,
- Disposal of Unlisted Shares and
- Partnership Discrepancies.
HMRC receives data from a vast number of sources and believe that the use of nudge letters provides it with a cost-effective approach to communicate with a large number of taxpayers. Nudge letters are a standard communication on a specific topic from HMRC to a large group of taxpayers. The letters to date relate either to where HMRC have identified a potential loss of tax or, more broadly, are an educational exercise. The communication can be delivered by letter or even digital means including Personal Tax Accounts, emails or SMS texting. 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.
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 open an enquiry and find an error, failure to take action following receipt of a nudge letter could lead to higher penalties being charged. Our experience has shown that there can be inaccuracies with some of the information held by HMRC, or it has been interpreted incorrectly.
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 reduce the penalty charges. 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. The maximum prompted penalty for an offshore omission is 200%.
A professional tax adviser 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 an HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.
Should you require any professional advice please contact our head of tax disputes and resolutions, Danielle Ford.