After the huge amounts of money the taxman gave away during the COVID-19 pandemic, HMRC is keen to increase its tax take. One sign this is happening is the number of HMRC nudge letters that are currently landing on doormats. In many cases, if either you or your accountant don’t respond quickly, HMRC will open an enquiry. This could trigger penalties of 100% of the tax due.

What are the HMRC nudge letters about?

At the time of writing, we’re aware of at least three HMRC nudge letters.

The first letter we know of asks taxpayers to amend their 2020/21 Self-Assessment Tax Return on the grounds they have claimed too much Business Asset Disposal Relief (BADR) following a CGT disposal. BADR replaced Entrepreneurs’ Relief (ER) from April 2020. However, at the same time, the lifetime BADR/ER limit was capped at £1 million. Therefore, if you have claimed more than this, HMRC is likely to get in touch with you.

A second HMRC nudge letter is being sent to taxpayers who made provisional CGT rollover relief in the tax years before and including 2017/18, but who haven’t yet made a final rollover claim. If you make a provisional claim for rollover relief, you are supposed to give HMRC a final rollover claim. This is due within three years of 31st January after you dispose of the original asset. If you don’t make a final claim, the provisional claims expire.

As a result, HMRC is giving taxpayers 30 days to respond to this letter. If you have reinvested the proceeds within the correct time limits, then you can provide the taxman with a claim. If you can’t do that, HMRC will raise assessments for the deferred CGT based on the date of the original disposal.

Letters concerning remittance basis changes

The final HMRC nudge letter we’re aware of concerns remittance basis changes. The taxman is sending this letter to wealthy people who have either been tax resident in the UK for 7 years out of the preceding 9 years, or 12 years out of the preceding 14 years.

HMRC is telling these people that they either need to pay the remittance basis charge of £30,000 or £60,000, or move to the arising basis of taxation on their worldwide income and gains.

If you receive one of these letters, it’s likely you will have 60 days to amend your 2020/21 Self-Assessment Tax Return. If you don’t, HMRC may well open an enquiry.

What do I do if I get an HMRC nudge letter?

If you have a nudge letter and you’re not sure how to respond, please speak to your THP account manager. Additionally, if you have received any different nudge letters, please let us know so we can alert our other clients.

Need further advice on any of the topics being discussed? Get in touch and see how we can help.

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About Karen Jones

Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.

With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.

Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”

Karen’s specialist skills:

  • Personal Taxation
  • Tax Efficient Planning
  • Trust Administration
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