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HMRC Nudge Letters and Investigations : Managing Tax Enquiry

Published by UK Property Accountants
Published Date: February 11, 2023
Categories: HMRC Nudge Letters

Have you received HMRC Nudge Letters and are unsure what to do? Is it informal enquiries you are facing or maybe disputes in tax tribunals and courts? Understandably, these processes can be very expensive and mentally stressful for taxpayers. We understand your pain.

In this blog, we attempt to answer some of the most frequently asked questions about HMRC investigations and tax enquiries one at a time. Ready!!

Let’s start from the basics:

What Exactly is a Tax Enquiry?

Enquiry here carries normal dictionary meaning i.e., seeking information, asking, and questioning.

This may include a detailed examination of a specific item in a tax return or amendment of that return.

You Asked !

Does HMRC have the Power to Enquire into Tax Returns?

Yes, HMRC has the right to enquire into any tax return. This includes both original tax returns and subsequent amended tax returns.

The only condition HMRC must oblige before initiating enquiry is to provide the taxpayer with written notice.

HMRC can only enquire into a return or amendment or claim once.

We Answered !

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Types of Enquiries HMRC Carries Out 

HMRC, the UK tax authority, carries out various types of enquiries to ensure compliance with tax laws and the accuracy of tax returns.

Accordingly, these enquiries can range from a basic review to a comprehensive investigation, depending on the level of risk and complexity involved.

The following are the types of enquiries carried out by HMRC:

Full Enquiry

As the name suggests, full enquiry covers the return as a whole, and it tries to address major risks in the return

Aspect Enquiry

Here, HMRC identifies particular areas of a return that they concentrate on, which are referred to as issues or aspects

Random check

  • HMRC can assess the volume of non-compliance and improve their judgement of the tax gap
  • Supply further data to help us with our risk assessments, and
  • Ensure all areas are checked, not just those perceived as higher risk areas

What Should I do If I Receive a HMRC Nudge Letters?

STEp 1: Firstly, DO NOT PANIC

An enquiry is opened once you receive the opening letter from HMRC. When you receive such letters from HMRC, you'll notice that they are very apparent on whether they are enquiring into the whole return or particular entries.

Step 2: Eliminate Confusion

In addition, they also explain what risks have been identified and what information you are required to provide. This should prompt you to start gathering the information, and relevant documents to send to HMRC.

Step 3: ASk 

Remember that HMRC initially wants to understand the transactions, so don’t be alarmed. You can always ask the HMRC officer in charge of your case why certain questions were asked.

Am I Subject to Penalties?

The HMRC has different guidelines and penalties based on the level of cooperation and compliance with their regulations.

The penalties can range from a minimum rate for those who fully cooperate and provide all necessary information. Conversely, those who do not comply or exhibit non-compliance face a higher rate of penalty. 

For Example, 

If you have not disclosed your rental income which was due more than 12 months ago and you recently received a letter regarding the same. Here, the penalty rate they can charge you can range from 20% to 30%.

However, if you have been cooperative with them and help them with all the information they need, they will charge you with a minimum penalty i.e., 20%.

So, the key takeaway here is to cooperate with HMRC and provide them with the information they require within the given time frame.

What is HMRC Trying to Find out?

This depends on the type of enquiry done by HMRC. Usually, if they have a doubt in some figures of your return, they'll attempt to find out reasons behind it. 

Was the tax liability correct? Was there an understatement of tax liability? And so on.

Type of enquiry done by HMRC

HMRC conducts enquiries to ensure correct reporting of income and tax liability

Sometimes, if HMRC believes you have not disclosed any income in previous years, they may send you a nudge letter.

In this case, they are trying to find out your actual taxable income and tax liabilities.

Why did HMRC Send me the Nudge Letter?

We have a separate article regarding this, please find the link to the article below for more information.

HMRC Tax Investigation – 10 Reasons HMRC Might Audit Your Tax Return


Can an Enquiry Happen Before I Submit My Tax Return?

HMRC enquiry is based on the returns you have submitted. Typically, an enquiry happens after the tax return has been filed.

However, HMRC can send you a nudge letter to remind you to disclose any income you've failed to disclose in previous years.

Does HMRC have a Time Limit for Enquiries?

Yes, the time limit for voluntary returns is 12 months from the date nudge letter is received.

Customers served! 1 Months from the Date

In the same vein, an extended enquiry window applies to late filed returns and amended returns, i.e., the quarter following the first anniversary of the day the return was made.

Quarter days are 31 January, 30 April, 31 July, and 31 October.

Furthermore, HMRC can go far back up to 20 years in the case of undisclosed income that could potentially be discovered.

Can an Enquiry Result in a Change in the Figures on my Tax Return?

Yes, if it was concluded that there was an error when filing the return, the figures in your tax return can be changed.

If the tax liability is understated, you will have to pay the lost tax along with any interest and penalties.

Unable to Deal with an Enquiry? 

If you do not think you can deal with an enquiry now, you should contact HMRC as soon as possible and explain them the situation.

Unable to deal with HMRC enquiry

Contact HMRC immediately and comply with the requirements to ensure a non-problematic interaction

You may suggest alternative dates, but you must ensure to comply with the requirements within the given time frame.

How Can HMRC Find Out About my Rental Income?

HMRC has access to information from the land registry, the stamp duty land tax office, and agents have reporting requirements to HMRC, among other things.

Moreoever, they can scrutinize information and track down if you have any undisclosed rental income.       

How do I Contact HMRC?

HMRC's telephone number and email address is usually given in the nudge letter itself.

For general contact number, you can visit following HMRC site.

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