A nudge letter from HMRC (aka: One to Many letter) does not open a formal enquiry into the taxpayer’s tax return. It is an informal “we think there is something wrong here” nudge, which invites the taxpayer to correct their tax return, if necessary.
Some of these corrections may be because the data has been mistakenly entered in the wrong box on the tax return, others may be due to more serious omissions.
The nudge letters are generated automatically by the HMRC computer, based on information received from third parties. But where the taxpayer is accused of missing something from their return, this is not necessarily the case, as HMRC doesn’t check if the tax return is correct before dispatching the nudge letter.
The issues currently getting the nudge treatment are:
Disposal of homes
CGT on residential property and carried interest is payable at 28% or 18%, rather than at 20% or 10% as due on gains from other disposals. If the taxpayer has declared the residential property gain in the box labelled “Other property, assets, and gains” rather than in the box: “Residential properties (and carried interest)” - an insufficient amount of CGT will have been paid.
HMRC is writing to taxpayers where it believes a residential was sold, but the gain was not correctly declared.
Disposal of unlisted shares
Companies House records the ‘persons of significant control (PSC)’ in each company. Where the PSC has changed in 2019/20 HMRC has assumed the shares must have been disposed of, and thus a capital gain or loss arose.
HMRC is writing to the taxpayer to ask why a gain/loss was not declared on the 2019/20 tax return. It may well have been declared, but HMRC hasn’t checked the tax return, or the gain may be covered by the annual exemption. Alternatively, the taxpayer may have died or made a share for share exchange.
Partnership tax returns list the partners and their profit shares. Where these details do not match the data on the individual partners’ tax returns, HMRC is writing to those partners asking them to check the partnership pages (SA 104F) have been correctly completed.
Where HMRC is not satisfied with the explanation they may well open a formal enquiry into the tax return.
Written by the Tax Advice Network