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.
At the end of 2022/23, there were around 912,000 TTP arrangements in place, which had increased by around 69,000 compared to the year before. TTPs were in place for some £5.7bn compared to £5.4bn in the previous year.
For taxpayers who cannot pay their HMRC liabilities on time, HMRC may agree to a Time To Pay (TTP) arrangement.
What is a TTP arrangement?
A TTP will allow taxpayers to pay an HMRC tax liability over a period of time – in practice this ranges from six to twelve months. In most cases, the TTP arrangement will consist of regular monthly payments paid by direct debit.
When considering a TTP arrangement, the following should be taken into consideration:
- Whether all other avenues to raise finance to settle the liability have been explored.
- Only one TTP arrangement can be in place at any given time and this must incorporate all tax debts.
- Interest will be charged from the original due date of the liability until the liability has been settled in full.
- A TTP arrangement will be withdrawn and enforcement proceedings will commence if:
- The agreed payments are not paid on time
- Future returns are not filed on time.
- Future liabilities are not paid on time
Applying for TTP
A TTP arrangement can be set up by the taxpayer through their HMRC online government gateway account.
The taxpayer can set up a TTP arrangement online if:
- Tax returns are filed and up to date
- The liability is less than £30,000
- There are no other HMRC payment plans or tax debts
- It is less than 60 days after the payment deadline
A taxpayer can set up a payment plan online if they have:
- Missed the deadline to pay an employer PAYE bill
- Owe less than £50,000
- Plan to pay off the debt within 12 months
- Have debts less than five years old
- Have no other payment plans or debts with HMRC
- You have sent any employers’ PAYE submissions and Construction Industry Scheme (CIS) returns that are due
A taxpayer can only set up TTP online if they have:
- Missed the deadline to pay a VAT bill
- Owe less than £50,000
- Plan to pay within 12 months
- Have debt for an accounting period that started in 2023 or later
- Have filed all your tax returns
A taxpayer cannot set up a VAT payment plan online if using the Cash Accounting Scheme or Annual Accounting Scheme, or make payments on account.
For more information, HMRC’s guidance can be found here.
TTP arrangements which cannot be set up online
For Corporation Tax liabilities, any liabilities consisting of more than one type of tax, and for liabilities exceeding the online limits outlined above, the taxpayer will need to call HMRC to agree a TTP arrangement.
We recommend contacting HMRC before the liability becomes due. It is worth noting that, although interest will continue to be charged, surcharges will not apply if a TTP arrangement has been formally agreed with HMRC before the liability becomes due for payment.
If you require assistance agreeing a TTP arrangement with HMRC, our Tax Disputes & Resolutions team has a wealth of experience to help guide you through the process. This includes gathering the necessary information to understand your specific circumstances, the information HMRC will require to set up a TTP, how long the TTP could be in place for, calling HMRC with you (over the phone or in person) and agreeing the TTP. To see how we can help, contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions.
HMRC consultation on Electronic Sales Suppression draft regulations – proposed interest on penalties!
Electronic Sales Suppression (ESS) is a form of tax evasion. Legislation was introduced to tackle ESS non-compliance and made it an offence to use, create, supply, or promote ESS. HMRC is now looking to take this a step further and charge interest on ESS penalties with effect from 4 March 2024. The draft regulations can be found here. Don’t forget, HMRC is currently charging interest at a rate of 7.75%.
HMRC’s increased focus on offshore matters
Danielle Ford, Partner and Head of Tax Disputes & Resolutions, and Riocard Hoye, Senior Manager, contributed to WealthBriefing, discussing HMRC’s recurring nudge letter campaign targeting individuals with offshore interests, with a letter titled ‘your overseas assets, income or gains’. Nudge letters are a cost-effective strategy for HMRC to prompt a large number of taxpayers to correct discrepancies in their tax affairs. Read more here.
HMRC targets nursing and care homes
HMRC has issued a One to Many letter to businesses in the nursing and care home sectors due to concerns that they have been targeted by agents encouraging them to make Research and Development (R&D) claims that HMRC regard as ineligible. Although HMRC recognise that the sector can meet the criteria for making R&D claims, its experience is that most claims are rejected. The letter also explains that HMRC operates a ‘pay the claim first, then check it’ system. More information can be found here. HMRC has a continued focus on R&D claims and has issued updated guidelines for compliance to ensure that any claims submitted are valid.
Gala film scheme loses HMRC dispute
The partners in a film tax scheme, Gala Film Partners LLP, have lost a dispute with HMRC at the First-tier Tax Tribunal (FTT) over whether its losses of £111m for 2003/04 were a true interpretation of the trading position. The Tribunal found that the partners were not entitled to claim relief for interest paid on loans taken out and that the LLP had not accounted for the losses correctly.
Property business arrangements involving hybrid partnerships do not work
HMRC is aware of a scheme being marketed as a tax planning option to individual property landlords. The scheme claims to allow increased mortgage interest deductions, reduce tax payable, reduce Capital Gains Tax (CGT) on the sale of properties and reduce Inheritance Tax (IHT) on death. HMRC’s view is that the scheme does not work and those who use the arrangements will pay more than the original tax liability in terms of tax, interest, penalties and fees. In November, HMRC sent nudge letters to a small number of agents and their clients who are involved in this tax planning. The letter invites withdrawal from the scheme and requires a disclosure to HMRC by 31 January 2024.
Bernie Ecclestone receives suspended sentence for tax fraud
92-year-old Bernie Ecclestone received a 17-month suspended sentence in relation to tax fraud, attracting significant media attention. This arose from a Code of Practice 9 (COP9) meeting in which Mr Ecclestone was proven to have made false statements in relation to offshore trust structures and HMRC sought to criminally prosecute him. This is in line with HMRC’s updated COP9 document, which reaffirms HMRC’s intention and right to criminally prosecute those who do not adhere to the process. Our tax disputes team is highly experienced in navigating the COP9 process and our Private Client and Trusts team has vast experience in all offshore matters.
BlueCrest Capital v HMRC
The Upper Tribunal (Tax and Chancery Chamber) (UTT) upheld the FTT’s decision in the case of BlueCrest Capital Management (UK) LLP v HMRC. The courts found that HMRC’s guidance was too specific on the application of ‘significant influence’ as per the rules, and they did not necessarily have to refer to influence on the entirety of the business to apply. The UTT stated “We consider that the FTT made findings of fact that it was perfectly entitled to make and that there was no error of law in its approach to and construction of the legislation, or in its application of the legislation to the facts of the present case, as found by the FTT.” This emphasises that each case will be viewed upon the facts. Read more here.
HMRC consultation on regulation of cryptoassets
In October, HMRC published conclusions to their consultation process, and a further call for evidence, in respect of their proposed regulatory regime for cryptoassets. HMRC’s intention is to regulate these assets, which until now have not been centrally regulated, as it is clearly an area where HMRC believes there is lost tax. We have previously written about those who may have unexpectedly created a tax point when trading in cryptoassets here.
Autumn Statement 2o23
The Government have announced that they intend to raise £5 billion over the next 5 years, through a package of measures designed to tackle the tax gap – the difference of what should theoretically be paid in tax versus what HMRC actually collects. The Government are also investing a further £163m in HMRC’s debt management resources. HMRC is highlighting that it wants to provide better support to those who are temporarily unable to pay, and to help taxpayers out of debt faster. Read more here.
HMRC new cryptoassets tax disclosure facility
HMRC has launched a new online cryptoasset disclosure facility to allow taxpayers to disclose unpaid tax on income and/or gains from cryptoassets. Additionally, HMRC has issued an educational nudge email to some taxpayers with basic information on crypto disposals tax. Crypto tax can be complex; we recommend that anyone needing to make a disclosure should first seek advice from an experienced tax professional, such as Danielle or Riocard.
We hope you enjoyed this edition of the Tax Disputes & Resolutions round up. You can read all of our previous insights here. If you would like further advice on anything mentioned above, or to discuss your circumstances in more detail, contact Danielle Ford, Partner & Head of Tax Disputes at email@example.com or Riocard Hoye, Senior Manager at firstname.lastname@example.org.
Season’s Greetings to you all.
As per the published Autumn Statement, these measures include Construction Industry Scheme (CIS) reform, a new criminal sanction for the promoters of tax avoidance schemes, together with further investments in debt management and collection. This is a continuation of significant investment in HMRC’s tax compliance; every £1 invested by the Government in HMRC compliance historically yields multiples of this for the exchequer in return. This highlights the Government’s commitment to making sure everyone pays the right amount of tax, in order to close the tax gap.
HMRC to increase debt management resource
The Government are investing a further £163m in HMRC’s debt management resources. HMRC is highlighting that it wants to provide better support to those who are temporarily unable to pay, and to help taxpayers out of debt faster. However, we do not expect this investment is introduced with the sole aim of helping taxpayers; instead, HMRC is taking tougher action on tax debts and looking to recover tax liabilities as quickly as possible to replenish the coffers as we continue to recover from the pandemic.
You can read haysmacintyre’s full coverage of the Autumn Statement here. For further advice on the above announcements, contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager.
Nudge letters targeting offshore affairs
HMRC’s recurring nudge letter campaign targets individuals with offshore interests with a letter titled ‘your overseas assets, income or gains’. Nudge letters are a cost-effective strategy for HMRC to prompt a large number of taxpayers to correct any discrepancies in their tax affairs.
With HMRC’s access to a wealth of data under the Common Reporting Standard (CRS), the risk of penalties for tax irregularities has significantly increased. In the tax year 2022/23, HMRC’s upstream operational yield, which includes nudge campaigns, contributed £5.3 billion in revenue, indicating the success of the nudge letter approach.
What to do if you receive a nudge letter
Taxpayers are urged to take nudge letters seriously, as they are targeted and informed by detailed information suggesting offshore income or gains unreported in UK tax filings. Responding within the stipulated 30-day deadline is advisable, and seeking professional advice is the first course of action, particularly for disclosures that require detailed knowledge of HMRC’s complex penalty regimes. Proactive disclosure of errors or omissions before receiving a nudge letter can significantly reduce potential penalties, with some starting as low as 0%.
You can read the article in full via WealthBriefing here.
Our tax disputes service
Our Tax Disputes & Resolutions team are experts with HMRC’s nudge letter approach and can provide advice on your next steps to help mitigate your tax exposure. Contact Danielle or Riocard to discuss your needs in more detail.
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
HMRC continues to widen its use of nudge letters. As the number of sources providing detailed financial information to HMRC increases, campaigns are becoming more specific and refined. The latest campaigns concern:
- Non-UK resident corporate landlords owning non-residential property in the UK.
- VAT errors arising from energy companies potentially not applying the correct legislation.
- Research and Development claims in the Nursing and Care Home sectors.
- Gift holdover relief claims made in 2021/22 tax returns.
You can read more about these letters here.
HMRC update – an insight into HMRC’s current priorities and strategies
Recently, HMRC has significantly increased its compliance activity to replenish the coffers following difficult times during the pandemic. Here, we provide our insight into the key areas that HMRC is targeting and their methods of doing so. Read more here.
HMRC’s interest in crypto investors
Many are unaware that crypto investments carry tax implications and can therefore be caught unaware by a ‘nudge letter’ from HMRC. The letter is sent to those taxpayers who HMRC believes need to review their tax affairs and respond accordingly. HMRC is able to send these letters based on information it holds, such as information on UK users from crypto exchanges. Read more here.
Capital Gains Tax (CGT) and divorcing couples podcast
Danielle Ford, Partner and Head of Tax Disputes & Resolutions, and Kay Mind, Private Client Director, featured on a family law podcast, discussing the implications of CGT for divorcing couples. Overall, the changes overall could be advantageous for both separating spouses/civil partners, and helps couples to plan the division of assets more effectively, during what is an emotionally challenging time. Listen here.
HMRC continues its focus on the football industry
Danielle Ford and Riocard Hoye, Senior Manager, contributed to HMRC’s Tax Investigations Enquiries and Powers magazine, discussing HMRC’s continued focus on the football industry and its use of Code of Practice (COP) 9 investigations. With transfer fees spiralling, the impact of any errors will be even more greatly magnified and we expect HMRC to continue to make challenges in this space. Read our recent update on this here.
Increased interest rates
From 22 August 2023, HMRC increased interest rates on late payments to 7.75%, with repayment supplements increased to 4.25%. This represents a rise of 0.25% for both late payments and repayments. HMRC says that the difference between rates compares favourably with commercial practice by other tax authorities globally.
Promoters could be criminalised
Tax avoidance promoters could be criminalised. The Government has issued draft legislation for consultation, prior to its intended inclusion in the Finance Bill 2023/24. It will mean promoters of tax avoidance schemes, who ignore HMRC stop notices, would face criminal charges and a potential two-year prison sentence. HMRC will also be given powers to bring disqualification action against directors of companies involved in promoting tax avoidance and those behind it.
HMRC is moving into the digital age
HMRC’s guidance states that it will accept digital or electronic signatures on 64-8 ‘authorising your agent’ forms. This includes scanned copies of 64-8s with handwritten signatures. Signatures signed on the screen of a digital device or displayed in a keyboard-typed font will be accepted however there are exceptions, including where HMRC has “legitimate reasons” to doubt that the taxpayer provided the signature. If the taxpayer does not place the signature onto the 64-8 form themselves, the form will be invalid.
We hope you enjoyed this edition of the Tax Disputes & Resolutions round up. You can read all of our previous insights here. If you would like further advice on anything mentioned above, or to discuss your circumstances in more detail, contact Danielle Ford, Partner & Head of Tax Disputes or Riocard Hoye, Senior Manager.
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.
Many are unaware that crypto investments carry tax implications and can therefore be caught unawares by a ‘nudge letter’ from HMRC. The letter is sent to those taxpayers who HMRC believes need to review their tax affairs and respond accordingly. HMRC is able to send these letters based on information it holds, such as information on UK users from crypto exchanges.
Important things to note in regards to crypto investments and tax include:
- Since crypto assets are considered to be investments, any proceeds from a disposal may be subject to Capital Gains Tax (CGT).
- A disposal for tax purposes also includes the purchase of one crypto asset using another crypto asset. For example buying Ethereum using Bitcoin results in a disposal of Bitcoin.
- Individuals have a CGT Annual Exempt Amount (AEA) in each tax year, currently £6,000. If an individual’s AEA is exceeded when aggregating capital disposals in a tax year, CGT will apply and penalties and interest charges could arise if this has not been dealt with properly.
- Nudge letters should not be ignored – seek professional advice straightaway to determine your next steps.
You can read Danielle and Riocard’s article in full on City AM.
Have you received a letter from HMRC?
It is recommended that taxpayers seek professional advice immediately after receiving a nudge letter or a statutory enquiry from HMRC, or discovering a mistake in their filings. Danielle Ford or Riocard Hoye.you have any kind of dispute with please contact