Recently, we have seen a rise in the number of 'nudge' letters that HMRC are issuing to taxpayers in respect of potential undeclared income and gains.
Nudge letters are letters sent automatically by HMRC, usually as part of a campaign and relate to specific areas of tax. Recent campaigns have included disclosures on foreign income (Worldwide Disclosure Facility) and income from property (Let Property Campaign). The purpose of a nudge letter is to prompt an individual to review their affairs to check whether any additional information or income needs to be declared to HMRC. This does not mean that you have necessarily omitted any income and gains and assuming that you have avoided paying tax, it is merely a prompt for you to review your own affairs to ensure that you are compliant with HMRC. We are aware that HMRC will be issuing nudge letters in relation to the following areas… Cryptocurrencies
We have been informed that HMRC are in the process of issuing nudge letters to known crypto investors. The nudge letter states that they believe the individual in question holds, or held investments in cryptocurrencies. It goes on to say that capital gains tax may be due if the cryptocurrencies have been disposed of and gains of over £12,300 have been realised.
Under the Automatic Exchange of Information agreement, HMRC has made multiple agreements with other countries to allow the exchange of information between tax authorities of different countries. This is to help minimise tax avoidance and evasion in the UK. Under this arrangement, HMRC will have collected information of crypto investors in the UK and it is on this basis that these nudge letters will be sent out.
Foreign Tax Credit Relief
HMRC will soon be writing to taxpayers where they believe the individual has received income from a foreign country, such as interest or dividends, and made a claim for relief for foreign tax paid.
Depending on certain criteria, you may be taxed twice in both the UK and the jurisdiction in which your income derives from. Under foreign tax credit relief, you can claim a credit against UK tax for the foreign tax paid but the credits allowable are subject to restrictions, the rates of which depend on the country the income derives from. The nudge letter will state that the rate of relief claimed is incorrect.
Self-Employment Income Support Scheme (SEISS)
This nudge letter relates to instances where individuals have told HMRC that they are trading as sole traders or partnerships and claimed SEISS grants. The letter is checking the eligibility for SEISS grants on the basis that the individual has not completed a 2019/20 tax return or completed any self-employment/partnership pages on their 2019/20 tax return. Action will need to be taken within 30 days of the date of the letter, otherwise the individual will be required to pay back the grants received in the year.
In the above cases, the first step when receiving a nudge is to review your information. Ignoring the letters could leave to further penalties with HMRC.
Should you receive a nudge letter in any of the above areas we recommend you should seek professional advice.
Contact us At MHA Tait Walker, our Private Client team can assist with undertaking a compliance review, by reviewing your information and data to ensure that your affairs are correct and up to date. In addition, we can also assist in any response or voluntary disclosures to HMRC to ensure that you remain compliant and resolve any potential issues in a professional and efficient manner.
