HMRC nudges up the pressure

HMRC’s latest annual report confirms 63,626 nudge letters were sent to businesses and taxpayers in the year ended 31 March 2022 as part of its compliance activities targeting coronavirus support payment claims. During the same period 27,897 enquiries were opened into coronavirus support claims. This reinforces the importance of nudge letters to HMRC’s compliance strategy.

The campaign recovered £226m for the Treasury.

HMRC’s use of nudge letters

You may be familiar with HMRC’s nudge letter campaigns to encourage taxpayers to improve offshore tax compliance. HMRC continually uses nudge letters to improve compliance by businesses and taxpayers and protect its revenues.

HMRC’s recent nudge letters have focused on tax matters including entrepreneurs' relief (now business asset disposal relief) claims, the remittance basis charge and cryptocurrency investments.

It is therefore not surprising that HMRC’s new Taxpayer Protection Taskforce uses nudge letters to recover excessive coronavirus support payments arising from incorrect claims.

It is also understood that HMRC will imminently send nudge letters to UK taxpayers who hold bank accounts with Euro Pacific Bank of Puerto Rico, following a joint investigation with four other tax authorities that revealed the bank had facilitated tax evasion for its clients.

What is a nudge letter?

A nudge letter is a similar letter sent to a population of taxpayers that HMRC considers may have the same specific tax risk. If you receive a nudge letter you will be encouraged to review your tax affairs and if appropriate make a disclosure of any inaccuracies to HMRC.

To support its offshore tax compliance activities, HMRC makes use of the financial information of UK tax taxpayers that it receives annually from over 100 overseas territories under the Common Reporting Standard.

The content of a nudge letter will vary depending on the specific tax matter at issue and the nature of HMRC’s information. A letter may also be accompanied by a certificate that requests any response to be declared correct and complete to the best of the recipient’s knowledge and belief.

This declaration contains a warning that any material inaccuracy in the response provided to HMRC may result in a criminal investigation and prosecution. There is no legal requirement to complete such certificates, but the invitation to do so highlights the importance of seeking the advice of a tax disputes specialist as soon as you receive a nudge letter. What should you do if you receive a nudge letter?

What should you do if you receive a nudge letter?

If you do not respond, or provide an inaccurate response to a nudge letter, you could face significant financial penalties and potentially HMRC’s most serious investigation powers.

It is worth bearing in mind that HMRC receives a significant amount of data from a vast range of sources, and that it has invested in the latest technology to interrogate the data and identify potential risk areas before using it to check tax returns.

It is always advisable to work with a specialist to review your tax affairs before responding to a nudge letter. Such reviews help determine whether a disclosure to HMRC is required and, if so, the most suitable approach with a view to achieving the best outcome.

For more information, please get in touch with Matt Taylor or your usual RSM contact.