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A 'Nudge' letter from HMRC: time to get your tax right

David Francis David Francis

After months of focusing on COVID-19 support, HMRC is enhancing its drive towards compliance. David Francis explains 'nudge' letters, and what you should do if you get one.

HMRC are changing their approach to enforcing tax compliance – issuing more and more 'nudge' letters. Since the start of COVID-19 HMRC’s regular activities have been subsumed by coronavirus- related support. As this comes to an end, we're seeing an accelerating return to compliance: the number of opening letters issued in the third quarter was almost double the amount for the previous one.

As HMRC return to normal operations, they're revising their approach to encouraging compliance. It still means robust interventions on fraudsters and deliberate tax avoiders, but it's also using their vast pools of information to nudge people towards compliance – sending standardised letters to the thousands of taxpayers who appear (from the data held) to have made an error with their submissions and encouraging self-correction.

This one-to-many campaign minimises the cost to HMRC in their quest to reduce the tax gap. This tactic of subtly pushing people towards compliance is why they're called 'nudge' letters.

Why would you get a 'nudge' letter?

It's common knowledge that HMRC have access to an unprecedented volume of information about taxpayers and businesses. Each year they look for new ways to draw out differences and potential errors. Whether it's an asset, a source of income or anything else, they've reviewed what information they hold already, compared it with what you have declared, and identified something that does not look quite right.

What should you do if you get a 'nudge' letter?

HMRC's analysis is getting better all the time, but they still make mistakes. When you receive such a letter, the first thing to do is double check the accuracy of what you returned and establish whether it was (and remains) correct. If there's any doubt, engaging an advisor to support at this stage can save significant costs down the line.

There are various one-to-many campaigns, which all operate slightly differently, but typically, if there is nothing wrong there’s no harm in notifying HMRC.

If you have made a mistake, you should consider how best to put it right: via disclosure, amendment, or simply responding to HMRC's letter. The best approach depends on the specifics of the campaign and your circumstances, so again an experienced disputes adviser can help you find the best way to correct your error.

What happens if I ignore the letter?

If you do not respond to HMRC's letter (or simply tell them that your return was correct when it wasn’t), they will likely open an enquiry into it. If it's established that the return was in fact incorrect, your failure to act on the 'nudge' letter will be taken into account in their consideration of penalties. Enquiries can be costly to deal with in the first instance, and a higher financial penalty is never a pleasant prospect.

How we can help

Our team of experts can help to review your tax position, identify any shortfalls, and support you through the process of putting them right. We can be by your side, leveraging our experience and network of connections at HMRC. Once we've worked together to determine a plan, we'll put together your response or disclosure and represent you in communication with HMRC to minimise any tax and penalties you may have to pay. 

Get in touch with David Francis if you have any questions about 'nudge' letters, or would like guidance on any other compliance issues.

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