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What to Do if You Receive a ‘Nudge’ Letter From HMRC

Nudge letters are issued where HMRC has reason to believe an individual has undeclared taxable income, often because of information-sharing agreements that may indicate a revenue or gain occurring in another jurisdiction that does not marry with the declarations made.

The important aspect when receiving any communication from the tax office is to ensure you respond – even if you believe the letter has been issued in error or there is no further tax to pay or declare.

If you do not respond or request further information, HMRC may initiate enforcement action, so it is always essential to speak to your accountant or tax adviser to unpick the cause of the nudge and clarify the matter quickly.

Reasons You May Have Received an HMRC Nudge Letter

A nudge letter could relate to any number of scenarios, but in most cases, there is a legitimate reason for the tax authority to think a UK-based taxpayer has received a taxable revenue that they have no record of.

These nudge letters can appear vague and will often not state which tax period the prompt relates to, but they can be linked to events or incomes generated over several years and in multiple countries.

Ignoring a nudge letter or assuming it is spam due to the lack of detail is never a wise move. HMRC will follow up if they have not received a response, either to state that there is no tax submission or payment due or to provide context or evidence that nullifies their potential concern around undeclared or unpaid tax.

Generally, there are three circumstances that result in a nudge letter, although these are not exhaustive:

  • HMRC receives information from another tax authority that does not correspond with its own.

  • A taxpayer has recorded a change in their personal tax position, or a change in tax legislation means they may be liable for additional or different tax payments.

  • The tax office has received new information that it wishes to clarify.

You normally have 30 days to reply, and sometimes less, but you can also request an extension if you need more time to investigate the reason for the nudge – HMRC can grant an extension at its discretion and depending on the reasons given.

Verifying the Authenticity of a Nudge Letter From the Tax Office

The most common reason for taxpayers to disregard a nudge letter is that they assume the correspondence is fake. If you have doubts about whether a communication is genuine, the first thing to do is call HMRC, using the contact information on the government website rather than any details displayed on the letter. Alternatively, you can contact the SAS Accounting team for assistance.

HMRC rarely uses phrases such as 'urgent', and you can often spot scam letters by looking at email addresses, phone numbers and reference codes and checking if these correspond with the information online and your tax records.

In the vast majority of cases, a nudge letter simply asks you to check whether your reported income is correct and make amendments if appropriate. For example, you may have earned interest on capital held within a bank account overseas and can make an adjustment to your tax return accordingly.

Should the tax office have a serious cause for concern or believe they have uncovered criminality, they will commence a criminal tax investigation or open an audit, so a nudge letter isn't an emergency, although it still requires a prompt and full response.

If the nudge is correct, and you have undeclared tax obligations, you can normally settle these without further action. However, you should never assume the letter does not require a response since HMRC will usually respond by opening a formal enquiry, sometimes adding the costs to your tax bill or levying increasing penalties.

The Importance of Professional Advice When Handling HMRC Nudge Letters

In every scenario, we recommend getting in touch immediately if you receive a nudge letter. Cross-border taxation is a complex topic, and there may be a perfectly legitimate and compliant reason for HMRC to have raised a query which does not result in any further taxation or liability.

Tax irregularities can occur for countless reasons, and a nudge letter in no way means you have committed a tax offence or that you necessarily have a disclosure or a tax payment to submit.

The best response is to consult an experienced accountancy adviser with a comprehensive knowledge of tax policy, who can assess your position, liaise with HMRC on your behalf, and clear up queries quickly and well within the time limits imposed.

Should you have any questions about a nudge letter, need help understanding the reason for a tax office communication, or wish to access expert guidance about the next steps forward, please get in touch at any time.