HMRC Nudge Letters: What You Need to Know

HMRC employs the nudge letter’s approach to subtly remind taxpayers of their tax responsibilities, such as filing tax returns, paying owed taxes, updating inaccurate information, or correcting any issues with their tax affairs

What Are Nudge Letters?

HMRC have been increasingly using nudge letters as an informal reminder that encourages the taxpayers to review and correct their tax filings and obligations. HMRC guidance states that nudge letter campaigns must be used in relation to the compliance risks identified. Therefore, if you have received a nudge letter, it is because a specific reason or concern has been flagged.

HMRC employs the nudge letter’s approach to subtly remind taxpayers of their tax responsibilities, such as filing tax returns, paying owed taxes, updating inaccurate information, or correcting any issues with their tax affairs.

These letters, inspired by behavioural economics, aim to “nudge” individuals and businesses toward fulfilling their tax obligations voluntarily without direct enforcement or penalties.

Why Did You Receive a Nudge Letter?

You might receive a nudge letter if HMRC suspects discrepancies in your tax filings. HMRC targets various areas of tax compliance with these letters, including but not limited to:

• Overseas income or assets
• Crypto asset transactions
• Rental income
• Business Asset Disposal Relief
• Capital gains
• Self-employed income
• Research and development claims

What Should You Do If You Receive a Nudge Letter?

1. Review your tax returns for any inaccuracies, especially in the areas mentioned above. Double-check your records for accuracy.
2. Consult a tax professional If you’re unsure about the accuracy of your filings, consider contacting a tax professional or accountant.
3. Respond Appropriately: Nudge letters don’t usually require a direct response, but they do imply action on your part. If you discover a mistake, HMRC expects you to correct it. You can do this by submitting an amended return.

What could happen if I do not respond to the Nudge Letter?

Ignoring a nudge letter could lead to:

• A formal tax investigation
• Financial penalties for inaccurate filings
• Possible legal action for deliberate non-compliance

Even if no corrections are needed, it’s advisable to inform HMRC, as doing so could help avoid a potentially unnecessary and costly formal inquiry down the line.

If you believe you may need to act on your tax affairs, you should always consider taking professional advice.

If you need assistance with the correspondence with HMRC or any related matter please contact us.

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