What to Do If You Receive One of HMRC’s ‘Nudge’ Letters

Understanding HMRC’s Nudge Letters

Purpose:

• Reminder: Nudge letters are sent to remind you to check your tax return and ensure all income, gains, and profits have been properly declared.
• Not a Formal Investigation: They are not an indication that HMRC suspects tax evasion but are a prompt to review and amend your return if necessary.

Typical Content:

• Certificate of Tax Position: This document is included with the letter and requires a response within 30 days.
• Targeted Areas: Recent letters have focused on specific issues, such as the application of incorporation relief in property businesses.

Steps to Take Upon Receiving a Nudge Letter

1. Review Your Tax Return:
   • Verify Information: Compare your tax return with the information HMRC is highlighting. Ensure that all sources of income and gains are accurately reported.
   • Check Reliefs and Allowances: Confirm that any claims for reliefs, such as incorporation relief, are correctly applied and supported by your documentation.
2. Respond to HMRC:
   • If You Agree with HMRC’s Assessment: If you find discrepancies or errors, correct your tax return accordingly and inform HMRC using the contact information provided in the letter.
   • If You Disagree: If you believe your tax return is accurate, respond to HMRC with a detailed explanation. Include calculations and any supporting evidence to substantiate your position.
3. Use the Provided Contact Information:
   • Email Communication: For specific queries, such as those related to incorporation relief, use the designated email address provided in the letter to communicate with HMRC.
4. Document Your Response:
   • Keep Records: Retain copies of all correspondence, calculations, and supporting documents related to your response. This documentation may be useful if HMRC requires further information or if there are subsequent queries.
5. Follow Up:
   • Check for Confirmation: Ensure that HMRC acknowledges receipt of your response. If you do not receive confirmation, follow up to confirm that your submission has been processed.

Consequences of Non-Response

Discovery Assessments:

• If you do not respond within 30 days, HMRC may issue a discovery assessment, which could lead to additional tax liabilities, penalties, or even criminal proceedings if significant discrepancies are found.

Additional Resources

• Taxation of Chargeable Gains Act 1992: For detailed information on incorporation relief and capital gains tax.
• Self-Assessment Helpsheet HS 276: Provides guidance on incorporation relief.
• HMRC Publication: For insights into HMRC’s approach to tackling tax non-compliance, refer to the HMRC publication on tackling tax avoidance and evasion.

By carefully reviewing the nudge letter and taking prompt action, you can address any potential issues and avoid further complications with HMRC.