New HMRC nudge letters bring tax return deadline headache

11 January 2022
HMRC sends nudge letters to taxpayers in an effort to encourage them to rectify their tax affairs where it believes there may be errors or omissions in their tax returns. Nudge letters offer taxpayers the opportunity to deal with HMRC outside the normal enquiry process. This can be beneficial in terms of overall costs and penalties incurred in correcting previous submissions and ensuring correct disclosure on current and future tax returns.

In the past, such letters have often been generic. However, more recently, we have noticed nudge letters becoming more specific. In particular, the letters will suggest that HMRC has information that has not been disclosed or differs from the taxpayers’ 2019/20 tax return, urging the taxpayer to take action to amend the return if necessary, whilst also ensuring their 2020/21 return is correct.

Recent examples include HMRC asking taxpayers to consider whether the foreign tax credit relief which they have claimed is correct. Other letters suggest there is a disparity between PAYE details disclosed on returns and the information held by HMRC. Such information can be made available to HMRC by third parties under the Common Reporting Standard or from employers under their UK reporting obligations.

Mistakes do happen especially where, as appears to be the case with recent nudge letters, HMRC’s system is interrogating information held from third parties and throwing out possible cases of under- or non-disclosure without any human intervention, but that doesn’t mean these letters should be ignored. Taxpayers who receive a nudge letter should ensure they take professional advice and respond to HMRC within the timeframe specified in the letter

It’s important to note that the recent announcement by HMRC to waive penalties for late submission of 2020/21 tax returns does not impact the requirement to make amendments to 2019/20 returns by the usual date. Taxpayers should be aware that where an amendment to their 2019/20 tax return is required, they should ensure this is submitted online before 31 January 2022.