COMPLIANCE COMPLIANCE
What’s behind the rise in nudge letters? HMRC is increasingly relying on nudge letters as a key part of its compliance strategy, largely because they offer an efficient way to influence taxpayer behaviour at scale. These letters are designed to prompt a targeted group of taxpayers into taking specific actions, such as filing corrections, paying outstanding taxes or disclosing previously hidden income. Given HMRC’s resource constraints, using nudge letters is a practical solution that maximises impact with minimal effort, much like casting a wide fishing net to catch numerous fish at once. By nudging taxpayers en masse, HMRC can engage with a broader audience while conserving valuable manpower for more complex cases. The growing use of nudge letters also suggests they have been effective. Much like direct marketing campaigns, these letters rely on the principle of gentle persuasion, often reminding taxpayers of their obligations or providing them with helpful information. So, it’s easy to see why HMRC has gone down this path. It’s a numbers game. If you send enough nudge letters, you’re going to get a response. While the letters request action from the recipient, it must be remembered that nudge letters are outside the standard s9A TMA 1970 enquiry approach and are not considered formal enquiries. As such, responses to these letters are voluntary. However, HMRC still retains the authority to invoke its Schedule 36 FA 2008 powers if it wishes to compel a response. In cases where taxpayers do not voluntarily amend their returns or take the requested How should agents respond to nudge letters? With HMRC sending nudge letters directly to agents, without clients copied in, many will wonder what the correct process should be if they receive one of these letters. AccountingWEB recently summarised new guidance from the Chartered Institute of Taxation, which provides useful considerations for agents, including the steps outlined below. Step one: identify the clients Agents should identify affected clients and prioritise confidentiality. HMRC may provide a partially redacted list on request, but this could pose confidentiality concerns. Ensure secure handling of records and avoid
including other clients’ details in the same file. Before proceeding, agents should clarify whether the work falls under fee insurance or will incur additional costs. Step two: contact the clients Agents should promptly inform affected clients about HMRC’s query and discuss possible responses. Only disclose client information with their permission, as one-to-many letters are informal and do not require a mandatory response. Clients should be advised on whether it’s in their best interest to disclose information, considering potential penalties and the likelihood of formal requests.
an HMRC officer has also potentially opened the door for exploitation by scammers, as demonstrated by a sophisticated scam that was recently reported on AccountingWEB. Sajid Ghufoor, head of tax investigations at Azets, raised awareness of a fraudulent letter that closely mimicked official HMRC correspondence. In this case, a client received a letter that appeared legitimate, but closer inspection by Ghufoor’s colleague revealed inconsistencies, such as an unfamiliar email address used for correspondence. The scam letter utilised technical tax language and HMRC-like formatting, asking for sensitive documents such as bank statements, VAT returns and identification details. The scammers even used an HMRC sorting office postcode to make the letter more convincing. Ghufoor highlighted that HMRC’s increasing use of non-standard enquiry and nudge letters makes it harder for taxpayers and agents to distinguish between genuine and fraudulent correspondence. Nudge letters are clearly not going anywhere. The volume of nudge letters and non-standard enquiry letters from HMRC over the summer only goes to show that they have become a key tool in the tax data disclosure, even if this is typically covered by engagement letters. Client consent is also required for any tax return amendments or voluntary disclosures. If a client chooses not to respond, agents should document the reasons. Step four: communicate with HMRC Agents can correspond with HMRC via email but need to ensure clients understand the risks. Agents should request a list of affected clients from HMRC before confirming the use of email communication. If the deadline provided cannot be met, agents should negotiate an extension with HMRC. For former clients, agents must maintain confidentiality and direct HMRC to the client or their new agent.
Step three: get authorisation from clients Agents should secure client approval for
action, HMRC can still pursue further measures. This may include imposing penalties or taking other enforcement actions to ensure compliance. What should agents or taxpayers do if they receive a letter? Naturally if a letter pokes through the letterbox of a taxpayer, they’re going to be on the phone to their agent in a panic, concerned about why they’ve received this letter. Readers of AccountingWEB have commented about how they’re more than happy to ensure their clients pay the right amount of tax, but they only wish HMRC was more forthcoming and specific with the information to begin with, rather than presenting the agent or taxpayer with a generic letter. As one reader vented under one of the articles on this topic: “If we now get, say, a letter with 40 clients on, with no idea what the problem is, how much time do we have to spend trying to sort it out?” So, for many agents dealing with these generic letters, they end up finding themselves taking on additional work to sort out the issues, spending time working out which client is affected, and ending up kicking themselves because they didn’t discuss an additional fee with the client before the process started.
department’s compliance strategy. The rise of these letters not only
calls on agents to be better prepared to respond appropriately to these letters, but the recent example of the scam letter highlights how agents and taxpayers could find themselves in a potentially destructive situation if they’re not engaging with HMRC or applying the right amount of professional scepticism. n
Don’t get scammed But there is also another serious
consideration for taxpayers and agents. The ubiquity of the generic one-to-many letters which are often devoid of contact details for
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| Professional in Payroll, Pensions and Reward |
Issue 105 | November 2024
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