Where HMRC is sourcing taxpayer data

HMRC receives more taxpayer specific information than it ever has before, from a variety of sources, including:

• Financial institutions across over 100 tax jurisdictions, with information on financial accounts exchanged annually.
• Digital platforms, including those facilitating short-term property rentals, private hire vehicles and online private sales activity.
• Whistle-blowers, who can be financially rewarded for supplying HMRC with information. This is particularly relevant with the new Strengthened Reward Scheme.

With the introduction of the crypto asset reporting framework, which came into effect on 1 January 2026, HMRC will also begin receiving data relating to the buying and selling of crypto assets.

How HMRC’s 'Connect' system triggers nudge letters

HMRC’s Connect system is data-matching software used to cross-check information received and identify anomalies or trends. Connect has access to key data such as financial information, property and assets (through Land Registry, Council Tax and DVLA records) and social media or marketplace accounts. It also uses benefits data from the Department of Work and Pensions.

Following the cross-checking process, HMRC will occasionally open a formal compliance check into a taxpayer’s affairs. However, with a limited number of HMRC compliance staff, targeting one taxpayer at a time is simply not possible.

Instead, HMRC uses One to Many (OTM) campaigns and projects. These OTM campaigns are designed to prompt taxpayers to review their tax affairs for potential inaccuracies or educate them on common pitfalls. The correspondence issued by HMRC in a OTM campaign is often referred to as a ‘nudge letter’. The onus is on taxpayers to review their own position and disclose underdeclared tax liabilities to HMRC. It’s a cost-efficient method for HMRC to collect previously under-reported taxes.

Thousands of offshore nudge letters sent annually

Data obtained by RSM in March 2026 following a freedom of information request confirmed that HMRC’s Campaigns and Projects (C&P) compliance team had issued thousands of offshore nudge letters:

Assuming the HMRC C&P compliance team issued offshore nudge letters at a consistent rate through to the end of the 2025/26 tax year, it is likely that the number of nudge letters will have been similar to that issued in 2023/24.

Further data obtained by RSM in June 2026 following a freedom of information request confirmed that HMRC’s C&P compliance team had also received disclosures relating to offshore income:

With the number of offshore disclosures increasing year on year, it demonstrates the ongoing effectiveness of nudge letters.

A comparison of the total offshore nudge letters issued and the number of offshore disclosures received suggests a significant proportion had nothing to disclose. Could Connect’s data be flawed?

Another interpretation might be that up to 70% of taxpayers are choosing not to disclose income and gains derived from overseas assets to HMRC. On that basis, there is merit in HMRC continuing to focus compliance activity in this area.

Don’t ignore a nudge letter

Nudge letters relating to offshore matters (along with some other nudge letters) include a Certificate of tax position. This includes a declaration which states:

“I confirm that the information I have given on this form is correct and complete to the best of my knowledge and belief. I understand that dishonesty making a false statement to evade paying tax is a criminal offence and I may be subject to investigation and prosecution.”

As can be seen from the wording, if a taxpayer signs and returns a declaration which is subsequently found to be false, this can have very serious consequences.

It is a mandatory requirement for all nudge letters to be logged on HMRC’s Caseflow software. HMRC therefore has a record of nudge letters issued to a taxpayer and their response - or the lack of.

What next for HMRC and taxpayers?

The statistics demonstrate that nudge letters successfully result in taxpayers reviewing their tax affairs and reporting underdeclared tax liabilities to HMRC. Nudge letters are cost and resource efficient, so we can expect to see their continued use.

In the year to 31 March 2025, the number of HMRC compliance staff increased by 750, and the Government committed further funding to increase the headcount. This will allow HMRC to balance the use of nudge letters and targeted compliance activity.

Tax transparency and reporting is expected to remain on the global agenda, which will result in HMRC continuously receiving taxpayer information. A continued upward trend in the number of nudge letters, compliance checks and disclosures is expected.

For more information about offshore disclosures and HMRC nudge letters, please get in touch with Olivia Wiggett or your usual RSM contact.

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