HMRC sends out tens of thousands of ‘nudge letters’ each year, and they have become one of its standard compliance tools. They are sent in connection with rental and Airbnb income, offshore assets, crypto asset disposals, undeclared business takings, capital gains and research and development claims, among other things. How you respond to one can have a direct effect on how the matter is resolved with HMRC.
For a confidential free discussion, call us today on 01908 538292, alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.
What is a Nudge Letter?
HMRC sends nudge letters where it holds information suggesting that a taxpayer may have undeclared income, unreported gains, or some other error in their tax position. Rather than opening a formal enquiry into everyone identified by a data exercise, HMRC writes to them all at once, sets out its concern in general terms, and asks each recipient to review their affairs and either make a disclosure or correct their returns.
The letter identifies the area of concern, such as income from property or overseas investments, says that HMRC has received information suggesting a possible discrepancy, and asks you either to bring your affairs up to date or to confirm that everything is in order. Some nudge letters also ask you to sign a certificate of tax position. You are under no legal obligation to sign one, and signing an inaccurate certificate can have serious consequences, so it is advisable to take advice from specialist HMRC solicitors like ours before returning any certificate or declaration.
Why does HMRC send Nudge Letters?
Nudge letters are part of HMRC’s data-led approach to tax compliance. Its Connect system matches information from a very wide range of sources against what taxpayers have reported about their financial affairs. Digital platforms, including Airbnb, report host income directly to HMRC. Overseas tax authorities exchange financial account information automatically under the Common Reporting Standard. Land Registry and Companies House records, bank data, letting agent information and material from other government departments all feed into the same system, providing HMRC with substantial amounts of data relating to individual taxpayers.
Where the data suggests a mismatch, a letter is a cost-efficient first step. It prompts large numbers of taxpayers to correct matters themselves without the resource cost of individual enquiries, and it leaves formal investigation for those who do not respond or whose cases look more serious. Furthermore, once you have been put on notice of a possible problem, it becomes much harder to argue later that any continuing failure was innocent.
Is a Nudge Letter a formal HMRC enquiry?
No, a nudge letter is not a formal HMRC enquiry, but nor is it routine correspondence that you can simply ignore. The correspondence tells you that HMRC holds specific information about you, and how you respond has a direct impact on how the matter unfolds.
Any disclosure you make after a nudge letter is likely to be treated as prompted rather than unprompted, and prompted disclosures carry a higher minimum penalty range. Contacting HMRC before it contacts you is always preferable, although acting quickly once you receive a letter still counts in your favour. Ignoring the letter is never advisable, and may result in HMRC taking further action.
How to respond
It is vital to treat a nudge letter seriously. If you receive one, you should carry out a careful and honest review of your position for all the years that could be affected, not only the year or the issue mentioned in the letter. If that review confirms that your returns are complete and correct, you should send a considered reply setting out the position, and keep the supporting records in case HMRC comes back with further questions.
If the review uncovers undeclared income or an error in your tax reporting, you must take steps to remedy the issue. Depending on the facts, you may be able to amend a return in time, or make a disclosure under the Let Property Campaign for residential landlords, the Digital Disclosure Service, or the Worldwide Disclosure Facility for offshore matters. Where your conduct was deliberate, the Contractual Disclosure Facility under Code of Practice 9 may be the appropriate route.
Taking advice early
Nudge letters are drafted in deliberately broad terms, and recipients usually have no way of telling what information HMRC holds or how serious the underlying issue might be. An adviser who deals regularly with HMRC disputes can form a view on where the data is likely to have come from, establish whether a disclosure is genuinely required, handle the correspondence so that nothing is conceded unnecessarily, and present any disclosure in the way most likely to secure the lowest penalty available. Where no disclosure is needed, a properly evidenced reply will often conclude a matter without further correspondence.
If you have received a letter from HMRC
If you have received a nudge letter, our specialist HMRC solicitors are on hand to advise you. We will review the correspondence, explain what HMRC is likely to know, and go through your options with you before responding to HMRC on your behalf.
For a confidential free discussion, call us today on 01908 538292, alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.
