HMRC continues with nudge approach

Over the last few years, HMRC has been using ‘nudge’ letters to promote and support their various compliance campaigns. Recent developments indicate that the system is set to continue.

Using the wealth of information generated by the automatic exchange of information between the tax authorities in various countries, where HMRC perceive a potential shortfall or error, it issues so-called ‘nudge’ letters to check. Nudge letters were initially used to prompt a check that income and gains from offshore assets had been fully declared in individuals’ tax returns. The letters did not necessarily mean that something was wrong – only that HMRC would like individuals to check their returns and decide if any action was required. Individuals were invited to make any necessary corrections. Alternately, individuals were invited to sign a certificate that all was in order. Mazars's current advice on this latter alternative is set out below.

This nudge system still applies and furthermore, it seems to have expanded into campaigns aimed at ensuring compliance with other areas of taxation such as with sales of residential property or with regard to letting income. Most recently nudge letters have been issued where HMRC suspect potential errors with claims involving furlough payments and the job retention scheme – both of which were created in response to the economic effect of coronavirus.

Mazars Tax Investigations team are aware that HMRC is about to embark on further rounds of nudge letters under a title HMRC referred to as ‘One to Many’ – in essence, they write one letter and issue it to many people. The Mazars team receive a number of calls from accountants, tax advisors and taxpayers each time a new version of nudge letters is issued. Our advice remains singularly uniform in that nudge letters should not be ignored. For taxpayers who receive such a letter, it is imperative that they speak to their accountant or tax advisor to clarify if there is anything further to remedy.

A tax investigation can follow if HMRC does not receive a response. Should assistance be needed, Mazars has a team of tax dispute specialists who are experienced in how best to respond to nudge letters and if necessary manage any disclosures which may be necessary.

Make no bones about it, what appears to be an innocuous round-robin prompt letter can carry a significant sting in the tail and care should be taken when considering how responses should be presented to HMRC; completing HMRC’s pre-prepared form/certificate may not be the best way to respond to such letters.

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For assistance, please contact Mazars Tax Investigations.

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