HMRC & “NUDGE” LETTERS – How Does Your Tax Fee Protection Policy Respond – If At All!

As the UK Government looks to fill the black hole caused by the Covid-19 Pandemic and the current financial crisis, H M Revenue & Customs (HMRC) is now continuing to increase its enquiry activity across all areas of taxation. Whilst its main focus will remain on those they believe to be fraudsters and deliberate tax avoiders, it also needs to ensure compliance across the wider population. To do this, it is using the vast pools of information held on Connect to “nudge” people towards compliance by issuing standardised “one to many letters” to the thousands of taxpayers who appear to have made an error with their submissions and encouraging self-correction without opening a formal enquiry.

This one-to-many campaign is a cost-efficient approach for HMRC in their challenge to reduce the £34bn tax gap. This method of subtly pushing people towards amending returns to achieve compliance is why they’re called ‘nudge’ letters. They serve as an unofficial warning from HMRC that you need to ensure your clients tax affairs are in order.

HMRC’s computer system Connect can identify where anomalies may arise within an individual’s tax return and provides the data for nudge letter campaigns. If information suggests a taxpayer has failed to complete their tax return accurately, or a potential tax loss is identified, nudge letters – and the cost of a stamp – are an inexpensive way for HMRC to follow up without opening a formal tax investigation.

Areas HMRC are currently targeting amongst others are:

  • Offshore companies with UK property.
  • UK landlords.
  • Individuals recorded as Persons with Significant Control at Companies’ House.
  • Euro Pacific Bank account holders.

If your client receives a nudge letter, it does not necessarily mean an error has been made, but you need to ensure that you respond correctly to HMRC on your client’s behalf.

If your clients receive such a letter, the first step is to check the accuracy of what has been returned to HMRC and establish whether it was correct. If after carefully reviewing your clients’ affairs you are happy there is nothing wrong, then notify HMRC accordingly.

If you discover an error, you should consider with your client how best to put it right. This can be through disclosure, return amendment, or simply responding to HMRC’s letter. The correct approach will depend on a particular campaign and your clients’ circumstances.

If your client fails to reply to a “nudge” letter, HMRC will likely open a formal enquiry into the return, with your client having already received this ‘warning’ but deciding not to take action. If HMRC then establish that your clients return was in fact incorrect, the failure to act on the ‘nudge’ letter will be taken into account when considering the level of penalties. An increased penalty is never a pleasant prospect!

Reviewing the return and your clients’ affairs on receipt of a “nudge” letter to establish the correct position to enable a response to a “nudge” letter can be costly and time consuming.

At Vantage Tax Fee Protection, we recognise this, and as a leading Tax Fee Protection provider continually reviewing and reacting to the changing HMRC landscape, we have decided to protect our accountancy practices and their clients in dealing with “nudge” letters.

If you would like to learn more about how our policy would react in providing cover, then please contact us and we will be happy to discuss our market-leading cover with you in detail. Please call 0116 274 9123 or email

Not all insurance policies are the same.

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