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Tax Investigations: HMRC nudge letters

With the introduction of the automatic exchange of information in 2017, HMRC now has a vast amount of data on overseas financial assets. They have been writing to UK taxpayers encouraging them to check whether their tax affairs are in order.
HMRC’s letters are commonly called 'nudge' letters, as the idea is to prompt the individual to review their UK tax position to see if the income or gains arising on the investment of the overseas funds should have been reported to HMRC.
The cooperating countries started to share information with the UK in 2018. The Common Reporting Standard (CRS) was devised by the Organisation for Economic Cooperation and Development to ensure that participating countries exchanged information at the same time and in the same format to crack down on tax avoidance and evasion.
HMRC risk assesses the information it holds to determine what type of intervention is required. Where it is unclear whether any tax has been lost, a nudge letter informing the recipient that information has been obtained through the exchange of information is issued. The recipient is asked to review their tax affairs and, if necessary, use the Worldwide Disclosure Facility (WDF) to disclose any unpaid tax.
Some recipients have been asked to complete a certificate confirming that they either need to disclose undeclared income and capital gains or that they consider their affairs to be up to date. This should be considered very carefully.
It is advisable for the individual to seek specialist tax advice before signing. Often, the best approach is for the adviser to write to HMRC to acknowledge receipt of the letter and explain what action, if any, will be taken to resolve the matter. Getting the strategy right first time is key to minimising the damage.
Getting expert advice
Our tax dispute resolution experts have a vast knowledge of how to resolve disputes and make voluntary disclosures to HMRC. We have a deep understanding of the UK tax legislation and how HMRC works, enabling us to recommend the right strategy to resolve the enquiry in the most cost-effective way.