HMRC Nudge Letters
Tax Question
My client, a limited company, has recently received from HMRC a letter stating that they believe that the company may have paid the wrong amount of corporation tax. The letter asks my client to check the most recently submitted CT600 and to amend it if it is not correct or to make a voluntary disclosure. Although this doesn’t appear to be an official letter, can my client refuse to comply?
Tax Answer
At the present time, it would seem that HMRC are sending numerous such letters, as we can testify from the number of cases brought to our attention from accountants calling our advice line to those seeking to submit a claim on our fee protection insurance to cover the cost of dealing with HMRC’s information request.
The commonly used name to describe these letters is ‘a nudge’ letter. These letters are intended to encourage taxpayers (individuals and companies) to correct any mistakes, errors or discrepancies with a view to your clients becoming compliant. The letter is not a formal opening of an investigation but is intended to encourage corrections to be made. A much gentler approach is used, and often this type of letter is used to target certain groups of taxpayers.
What triggers these letters? Often where a taxpayer has unusual transactions, such as financial-based assets such as cryptocurrency, but it can also be much more straightforward, such as omitting to return a capital gain or declare rental income.
The legislation that grants HMRC the power to issue such letters is the Finance Act 2008, Schedule 36. The legislation gives powers to collect data from various sources, such as the land registry as an example, and can go as far as collecting data from overseas tax authorities.
More than likely you and your client will feel unsettled to have received such a letter. Remember, it is not a formal investigation – yet. Take the opportunity to review your clients’ tax affairs and consider an amendment or a voluntary disclosure. This is a much softer approach than waiting for the formal investigation letter that is sure to follow if your client does not comply with the ‘nudge’ letter.
The benefits of responding to the letter are favourable. You can engage with HMRC, and the scene is set for good communication with the caseworker, reduced penalties should they apply for making a voluntary disclosure, and of course, it lessens the risk of more serious action.
Don’t ignore it but deal with it. Our claims team here at Vantage Fee Protect and our tax advisors are more than happy to offer any assistance.
For more information, please contact us at: consultancy@vantagefeeprotect.com
Angela Robson
Senior Tax Manager
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