Tag: nudge letters

Tax obligations when selling online

Posted on by Alicia Sprott

The details collected will include personally identifiable information on the individual, details of sales proceeds and the number of transactions. Individuals with more than 30 transactions per year will be reported.

For those operating a trade, income must be declared to HMRC. The exception to this is where income is below the trading allowance of £1,000 each year. If your gross income is higher than this, then it must be reported to HMRC.

Upon receipt of the information, HMRC will first undertake a review, comparing the information to tax filings. Any further action will be based on those who have generated income above £1,000, a significant number of transactions, or both. Having said this, HMRC’s review is not always perfect so in some cases we do expect those who may just be selling their old clothes to receive a letter from HMRC.

Following review, we expect HMRC will issue nudge letters to individuals, and in the most egregious cases, issue full enquiries and potentially commence criminal investigations.

The first report from online platforms is due on 31 January 2025. Penalties will be applicable should the digital platform not comply by the due date. Self-employed individuals must submit their income to HMRC on their Self Assessment tax return.

It’s therefore crucial to maintain meticulous records of income received from digital platforms. Any inconsistencies between your Self Assessment tax return and the Model Reporting Rules for Digital Platforms could trigger an investigation by HMRC. This initiative represents HMRC’s latest effort to address non-compliance in the context of the gig economy.

To protect yourself, we recommend keeping a detailed record of your online sales, including all income and expenses such as postage and packaging costs, especially if your sales exceed £1,000 in a year. This will allow you to review your position and respond to HMRC should the need arise.

Even if you are not trading, a letter from HMRC should not be ignored. We have seen HMRC commence enquiries into those who have ignored nudge letters. We strongly recommend seeking professional advice on receipt of a nudge letter, due to the potential penalties involved.

If you need further assistance on the above, or for advice on nudge letter correspondence, contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager.

Property sector remains in HMRC’s crosshairs

Posted on by Alicia Sprott

HMRC’s latest ‘One to Many’ property related nudge letters are targeting taxpayers who:

  • Incorporated their property business during the 2017/18 tax year.
  • Claimed for repairs and maintenance on the land and property pages of their 2021/22 Self-Assessment tax return.

2017/18 Incorporation Relief claim

The letter states that HMRC holds information which suggests too much Incorporation Relief may have been claimed, and as such, that insufficient Capital Gains Tax (CGT) may have been paid. The letter asks the taxpayer to check their Incorporation Relief calculation and to also look at the following areas:

  • That the capital gain arising on incorporation was not greater than the value of the property business that was transferred;
  • That the amount of any gain held over did not exceed the value of the shares received; and
  • That the Incorporation Relief claim did not include any other type of consideration, other than the shares received in exchange for the property business, i.e. a sum credited to a director’s loan account.

Taxpayers will have 30 days to respond from the date of the letter. If HMRC does not receive a response, it will review the information it holds and may raise discovery assessments, which can expose the taxpayer to higher penalties.

Given the technical nature of Incorporation Relief, we would strongly recommend taking professional advice if you receive such a letter.

Whilst this is a specific HMRC campaign focused on incorporations, we expect HMRC to continue to see property as a sector which will generate additional tax revenues and that further ‘nudges’ will be coming in the year ahead.

2022 repairs and maintenance

Nudge letters are also being sent to taxpayers who completed land and property pages in their 2021/22 tax return where repairs and maintenance (R&M) expenditure was claimed as HMRC believes too much relief may have been claimed. HMRC is concerned the R&M expense figure may include capital costs – the letter provides some examples of costs which are deductible and those which are not. HMRC is requesting that taxpayers review their 2021/22 tax return, and if an amendment is required, this must be filed to HMRC by 31 January 2024.

How we can help you

If you discover an error or omission within a tax return, voluntarily disclosing this before HMRC sends a nudge letter or opens an enquiry will lead to a more favourable outcome for you. If you act after receiving a nudge letter, HMRC will deem any disclosure as ‘prompted’, meaning exposure to higher penalties. We have detailed knowledge of HMRC’s powers and processes and can ensure an efficient outcome in all types of enquiries, disputes or tax disclosures with HMRC. We can also agree a payment plan with HMRC for any additional tax liabilities that are due.

Please get in touch with Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager, if you require assistance.

HMRC’s new nudge letter targets

Posted on by Alicia Sprott

HMRC continues to widen its nudge letter campaign, sending recent communications to:

  • Nursing and care homes regarding Research and Development (R&D) claims
  • Taxpayers who made a gift holdover relief claim in their 2021/22 tax return

R&D claims within nursing and care home sectors 

R&D is a Corporation Tax relief that companies can claim on the costs of activities in pursuit of scientific or technological advances. R&D can reduce a company’s tax liability or produce a repayment.

HMRC is issuing nudge letters to small and mid-sized businesses within the nursing and care home sector. The letter is designed to educate the sector, which HMRC believes has been targeted by unscrupulous R&D agents.

HMRC has identified R&D as a specific tax risk within this sector; many claims may be invalid, as R&D relief is unlikely to be available. Most claims within the sector that are rejected include:

  • Normal day-to-day activities, i.e. patient meals or care plans
  • Observing behaviour
  • Digitising administrative tasks
  • Constructing sensory gardens

Interestingly, HMRC highlights that some R&D agents in this area insist on receiving the repayment and deducting a fee of 15-25%, before paying the taxpayer the balance. It is worth noting, that although an R&D claim may have been repaid, it does not mean that HMRC has approved it.

Due to this, company directors are asked to check R&D claims submitted to HMRC.

If HMRC finds a claim they believe to be ineligible, the business will have to repay the R&D relief, including any fee deducted by the agent. HMRC may also charge penalties and late payment interest on the ineligible claim, increasing the liability to the business.

Gift holdover claim 

HMRC is also issuing nudge letters to taxpayers who have made a gift holdover claim in their 2021/22 tax returns, without including the completed HS295 form, or for cases where the form is not complete.

Taxpayers receiving a nudge letter have 30 days to either amend their tax return or submit a new, completed relief form. If action is not taken in respect of the nudge letter, HMRC may amend the tax return or open an enquiry into the taxpayer’s affairs.

HMRC’s letter states they are explicitly writing to taxpayers who have failed to claim gift holdover relief correctly, as their records show:

  • That the relevant claim form has not been submitted, which is required for any claim to be valid; or
  • The relevant claim form has been submitted, but it has not been signed, which means the claim for relief is invalid.

This means HMRC is unlikely to accept the claim, which could result in a tax liability on the disposal of that asset following HMRC’s amendment. In this case, HMRC would charge interest on any tax that is paid late. If HMRC takes corrective action, they may also consider penalties.

Seek professional advice

If you have discovered an error or omission within your tax claims or returns, being proactive and telling HMRC will lead to a more favourable outcome. Our Tax Disputes & Resolutions team can support with this process,  helping to ease the stress of communicating with HMRC. Should you need advice, please contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager.

HMRC’s latest nudge letter campaigns

Posted on by Alicia Sprott

HMRC continues to widen the scope of nudge letters. As the number of sources providing detailed financial information to HMRC increases, campaigns are becoming more specific and refined, focusing on smaller groups of taxpayers.

HMRC’s latest nudge letters relate to:

  • Non-resident corporate landlords owning non-residential property in the UK
  • Fuel and power supplies – risk of VAT errors
Non-resident corporate landlords owning non-residential property in the UK

HMRC is issuing nudge letters to non-resident companies that own non-residential property in the UK. The letters are being issued to companies that appear to have failed to notify HMRC for tax purposes. If you have an agent, they will not receive a copy of this letter, as HMRC do not hold a record of the company registering for Corporation Tax or Income Tax. If you receive a nudge letter, we recommend that you share the communication with a professional advisor as soon as the letter is received.

An individual will have 40 days to respond from the date of the letter; it is incredibly important that you respond to HMRC by the deadline to avoid incurring higher penalties.

The letter will be accompanied with a Certificate of Tax Position; there are serious consequences making a false declaration and as there is no de-minimis – caution must be taken. We do not recommend taxpayers completing the certificate, although a response to the letter must still be sent to HMRC before the 40-day deadline nonetheless.

Upon receiving a nudge letter, the action required will be bespoke to each taxpayer. Due to this, we recommend for a professional advisor to review your tax affairs, advise the action required and liaise with HMRC on your behalf.

Fuel and power supplies – risk of VAT errors

Since July 2023, HMRC has been issuing an educational nudge letter to energy companies. The letter requires businesses to check their systems and processes as HMRC has identified some systems that are not applying the legislation correctly.

HMRC has set a deadline of 45 days from the date of their letter to notify them of any errors that have occurred. As before, it is incredibly important that you respond to HMRC by this deadline.

Disclosures and penalties 

If you have discovered an error or omission within your tax returns, disclosing this before HMRC sends a nudge letter or opens an enquiry will lead to a more favourable outcome. This can result in lower penalties, as the disclosure would be considered ‘unprompted’. Alternatively, if you have received a nudge letter, HMRC will deem your disclosure as ‘prompted’, meaning potentially higher penalties.

HMRC has been sending follow-up communications to nudge letters that have not been responded to. HMRC has a database of taxpayers to whom it sends a nudge letter, and a record will be kept noting those who have not acted. If HMRC finds an error, we expect more robust action from HMRC with the possibility of higher penalties.

When to seek advice

If you have received a nudge letter from HMRC, a statutory enquiry notice, or believe you have made an error or omission in your filing to HMRC, we recommend that you immediately seek professional advice. This will help mitigate any penalties that may be due, and an experienced professional advisor can help navigate the disclosure or enquiry process. Additionally, your advisor can assist with related issues, such as agreeing to a payment plan with HMRC for the additional tax liabilities due.

We possess detailed knowledge of HMRC’s powers and processes and can ensure an efficient outcome in all types of enquiries, disputes or tax disclosures with HMRC. To find out how we can help, get in touch with Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager.

HMRC update – an insight into HMRC’s current priorities and strategies

Posted on by Katie Trower

Nudge letters

  • Fast becoming one of HMRC’s most common method of communication, this is where a standard communication is sent to many taxpayers who HMRC believes may have a tax issue to disclose, based on specific information they hold.
  • Nudge letters are much more cost effective for HMRC than opening full enquiries, as has traditionally been done. However, we expect HMRC to open enquiries into those who do not respond or make a full disclosure.
  • We are seeing these letters being issued for increasingly specific matters, most recently into Research and Development (R&D) claims and Electronic Sales Suppression (ESS) being used in businesses.
  • Should you receive a nudge letter, please send a copy to your haysmacintyre contact, as we do not always receive copies of all HMRC communications.

Code of Practice 9 (COP9) fraud enquiries

  • COP9 is HMRC’s most serious civil investigation type, where HMRC alleges fraud against a taxpayer. We are seeing an increase in such enquiries being opened, as HMRC focuses its compliance resource on those who have made the biggest mistakes.
  • COP9 provides immunity from prosecution but only for matters which are fully disclosed, so it is crucial to act quickly, make a full disclosure and adhere to the process.

Time to Pay (TTP) arrangements

Due to the ongoing cost of living crisis, many are finding themselves unable to pay tax bills outright and requiring a TTP arrangement. HMRC may agree to this but, in our experience, they are being much tougher in agreeing payment arrangements lasting more than six months, requiring sight of financial information to determine what may be possible.  Approaching HMRC and agreeing a TTP arrangement before a liability becomes due, reduces penalty charges and is favourable in the eyes of HMRC.

Notices of requirement to give security

Applicable to owner-managed businesses, such formal notices can require a business, or its directors, to provide funds as a deposit against current and future tax liabilities. It is usually issued where HMRC has concerns the business may not pay the tax liability and demand significant sums of money from directors personally. We have seen increased use of security notices and have succeeded in assisting clients overturn the demands of these notices by agreeing alternative terms with HMRC.

Settlements and enquiries into investments HMRC now consider to be avoidance schemes

These matters can often run over many years whilst HMRC seeks to defeat schemes in the courts, but with the increases in interest rates recently (HMRC’s late payment rate is currently 6.75%), interest charges can add up over the course of an enquiry. Seeking settlement with HMRC is possible, or even making an advance payment of the tax, where possible, to mitigate overall interest charges.

We are seeing HMRC amendments to earlier years’ tax returns following the conclusion of long-running enquiries.

It is vitally important to seek experienced professional advice and thoroughly check HMRC’s settlement calculations. We are regularly identifying errors in such calculations, usually in HMRC’s favour.

Please also note that payment of an Accelerated Payment Notice (APN) or Partner Payment Notice (PPN) are only advance payments of the tax and do not represent settlement in HMRC’s eyes. Such payments do not conclude open enquiries and interest will be payable from the original tax payment due date, until payment was made to HMRC.

Penalties issued by HMRC, including late filing and late payment

We strongly recommend seeking professional advice in relation to any HMRC penalties issued. There is a defined appeal process in relation to HMRC’s penalty regimes and it may be that penalties could be appealed, mitigated or, in some cases, suspended.

Our Tax Disputes & Resolutions team have a wealth of experience dealing with all HMRC matters. If you would like to discuss any of the above in more detail, or have an HMRC enquiry, dispute or appeal that we may be able to assist with, please get in touch your usual haysmacintyre contact, Danielle Ford, Partner and Head of Tax Disputes & Resolutions or Riocard Hoye, Senior Manager.

HMRC issues ‘One to Many’ notices to charities

Posted on by Tarryn Skilling

HMRC is issuing ‘nudge letters’ to charities.

The ‘One to Many’ approach takes the form of correspondence commonly known as nudge letters. Nudge letters usually state that HMRC holds information on the taxpayer that the letter is addressed to, and are used to encourage taxpayers to review their tax affairs.

Nudge letters are a cost-effective solution for HMRC to communicate with a large number of taxpayers. Letters previously issued either relate to a potential loss of tax that HMRC has identified or, more broadly, are an educational exercise.

This latest nudge letter campaign is an educational letter, helping charities to get their Gift Aid claims on aggregated donations right, together with a reminder of their Gift Aid record-keeping requirements.

Disclosures and penalties

If you find a mistake in your filings to HMRC, disclosing the error or omission before HMRC sends a nudge letter or opens 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. Completely voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error, and the length of time interacting with HMRC will be significantly shorter, compared to a full investigation.

A professional tax advisor can guide you through the disclosure process and advise, where applicable, of the penalty mitigation available. We recommend taxpayers immediately seek professional advice if they have found a mistake in their filings to HMRC.

At haysmacintyre, we have a wealth of experience in making successful disclosures to HMRC. Should you have any queries regarding your Gift Aid claims, please do not hesitate to contact Louise Veragoo, Not for Profit Tax Director, or Danielle Ford, Partner and Head of Tax Disputes & Resolutions.

Electronic sales suppression: the latest nudge letter campaign by HMRC

Posted on by Alicia Sprott

It is believed that HMRC holds concrete information and this data will be used to issue one of two nudge letters. Both letters state HMRC holds information which suggests the taxpayer has misused their till system to reduce their tax bill. Taxpayers will then have 30 days from the date of the letter to respond to HMRC.

HMRC has sent a clear message: they will take further action, such as making an assessment or opening an enquiry, if the taxpayer does not make a full disclosure to HMRC.

Letters will be sent to taxpayers identified by HMRC, encouraging them to review their tax affairs and, should they need to bring their tax affairs up to date, to make a disclosure. Depending on the taxpayer’s circumstances, the online disclosure may not be the most suitable method of disclosure to HMRC. Due to the nature of ESS, HMRC is likely to allege that the taxpayer’s deliberate behaviour led to the loss of tax and fraud could be suspected. Taxpayers should consider the Contractual Disclosure Facility (CDF) under Code of Practice 9 (COP9) to provide them with protection from criminal prosecution, for those issues disclosed.

Serious consideration should be given to this matter, as not responding to a nudge letter or making an incomplete disclosure, could set the ball rolling towards criminal prosecution. On receipt of an ESS nudge letter, care should be taken, and taxpayers should seek competent professional advice – not every advisor will have the expertise and may inadvertently make a misstep.

Disclosures and penalties 

If a taxpayer finds a mistake in their filings to HMRC, disclosing the error or omission before HMRC sends a letter (such as those detailed above), or opens 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 onshore, deliberate and concealed omission is 100%.

Voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error. Broadly, the length of time interacting with HMRC will also be significantly shorter compared to a full investigation.

A professional tax advisor can guide a taxpayer through the disclosure process, advise on the appropriate next steps and, 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.

Our Tax Disputes & Resolutions team are experts in dealing with all types of HMRC disclosures including CDF. We obtain favourable results for our clients, allowing them to move on without further intrusion from HMRC.

We are here to help; should you require more information or professional advice, please contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager.

Nudging up the pressure: HMRC’s increase in nudge letters

Posted on by Anna King

HMRC continues to widen its nudge letter campaigns with new communications. HMRC’s nudge letters are designed to remind taxpayers of their legal obligation to review and declare their tax affairs and correct any errors or omissions.

Nudge letters represent HMRC’s ‘One to Many’ approach – a single communication is sent to a large number of taxpayers who have been identified in respect of a specific tax risk. Nudge letters are therefore a cost-effective way for HMRC to communicate with many taxpayers, as HMRC does not have the resources to open full enquiries on each taxpayer it identifies through the information it receives.

To date, HMRC has ‘nudged’ taxpayers who they suspect have paid insufficient tax in regard to an extensive list of matters including, but not limited to: Overseas income and gains, Coronavirus Job Retention Scheme (CJRS), Annual Tax on Enveloped Dwellings (ATED) and Capital Gains Tax (CGT) on property disposals.

Nudge letters in circulation 

HMRC’s recent campaigns have focused on:

  • Those with an interest in offshore entities following the offshore entity register
  • Business Asset Disposal Relief (BADR) lifetime allowance
  • Research and Development (R&D) tax relief
  • Income from short term property letting
  • ATED filings which may have used incorrect bands used on returns
  • Online traders
  • Creating content on digital platforms such as TikTok, Instagram and YouTube
  • Self-Employment Income Support Scheme (SEISS) grants
  • Super-deduction

We have seen nudge letter campaigns becoming ever more specific, focusing on smaller groups of taxpayers, as the approach becomes more refined, and the number of sources providing detailed financial information to HMRC increases.

The campaigns are based on accurate sources of information which have been provided to, and reviewed by, HMRC. For example, the nudge letters sent to online content creators were generated by financial information given to HMRC by TikTok, Instagram and YouTube respectively. In a small number of cases, we have seen errors in HMRC’s interpretation of the information it receives.

The nudge letter campaign relating to the register of overseas entities also shows HMRC is utilising information it collects internally. This data is processed quickly, increasing the chances of HMRC identifying lost tax in a timely manner.

Nudge letters are not statutory – but they still need a response 

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 of tax position 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 an error or omission in your tax return, disclosing this before HMRC sends a nudge letter, or opens an enquiry, will have a more favourable outcome. It can result in the form of lower penalties, as the disclosure would be considered ‘unprompted’. If you have received a nudge letter, HMRC will deem your disclosure as ‘prompted’, meaning potentially higher penalties. For example, a prompted penalty for an offshore omission can be as high as 200%.

We have also noted that HMRC has started follow-up communications to nudge letters which have not been responded to. HMRC will have a database of taxpayers to whom it sends a nudge letter, a record will be kept noting those who have not acted. If HMRC finds an error, we expect action to be taken following an unsuccessful nudge to be much stronger and carry higher potential penalties.

Given the vast amounts of information HMRC has in its possession, its ability to review this using its dedicated teams and Connect software, and dedicated resource to ensure HMRC targets those identified, it means the risk of receiving a communication from HMRC has never been greater.

When to seek advice

If you have received a nudge letter from HMRC, a statutory enquiry notice, or believe you have made an error or omission in your filing to HMRC, we recommend taxpayers immediately seek professional advice. This will help to mitigate any penalties which may be due, and an experienced professional advisor can help navigate the disclosure or enquiry process. In addition, your advisor can assist with related issues, such as agreeing a payment plan with HMRC for the liabilities concerned.

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 you to draw a line under the matter and move forward without further intrusion from HMRC. To see how we can help, contact Danielle Ford, Head of Tax Disputes, or Riocard Hoye, Senior Manager.

Nudge letter theory: STEP Journal

Posted on by Alicia Sprott

Whilst HMRC has access to more information than ever before, it lacks the resources to open full investigations into each taxpayer it identifies as a risk. Therefore, nudge letters are a cost-effective way for HMRC to communicate with a large number of taxpayers when it believes that a taxpayer’s affairs are not in order, and has identified a potential loss of tax. Our STEP Journal article explains why taxpayers with connections to Euro Pacific Bank must act quickly and seek professional advice as soon as possible.

There are some key things to note with nudge letters:

  • An advisor may not always receive nudge letters on behalf of their client.
  • A nudge letter is not a statutory enquiry into a taxpayer’s affairs.
  • Making a disclosure before receiving a nudge letter from HMRC leads to the most favourable outcome.

Read Danielle and Riocard’s insights in more detail in the full STEP Journal article here (subscription needed).

HMRC’s use of nudge letters is ever expanding and they have used nudge letters to cover a wide range of topics. We recommend that 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.  If you have any kind of dispute with HMRC then please contact Danielle Ford or Riocard Hoye.

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