What to do if you receive a letter from HMRC

What should you do if you receive such a letter from HMRC?

1. Don’t ignore it and don’t panic

Many letters from HMRC are routine notifications, for example, HMRC have recently circulated letters containing information about Making Tax Digital for Income Tax.

However, some do require more urgent attention and careful consideration. These include compliance check letters known as ‘enquiry’ letters, ‘nudge’ letters or demands for payment.

These letters are issued due to a mismatch between the information HMRC hold and what you have declared on your tax return. HMRC has access to a wide variety of information relating to taxpayers’ affairs, and these letters are usually based upon evidence that suggests there may be a historic undeclaration of tax.

Do not ignore these letters, as that will only exacerbate the problem. Always read the letter carefully and consider seeking professional advice.

2. Understand the type of letter which you’ve been sent and verify its legitimacy

HMRC compliance letters vary in their nature and the level of seriousness. They may include:

Compliance check enquiry letters

• HMRC may ask for documents, clarification, or confirmation of your tax return (whether your personal Self-Assessment Tax Return, any company returns or Inheritance Tax (IHT) returns. Usually, HMRC is enquiring into one particular tax year or accounting period, but this is not always the case. See our article on Cross-Tax or Full enquiries.  

‘Nudge letters’

• HMRC may send a prompt suggesting you may have forgotten to declare a particular source of income or gains, often related to overseas assets, income and gains. These are usually based on information HMRC is already aware of, given that tax authorities across the world now share data. These letters encourage taxpayers to come forward. They are often referred to as ‘nudge letters’ and usually come with a certificate that HMRC ask you to sign and return.
•  Nudge letters often tell you that HMRC have information which shows that you may have income or gains which you may have to pay UK tax on.
• It is important to note that receiving a nudge letter does not necessarily mean there has been an historic under-declaration of tax. In many cases, the matter may be due to straightforward explanations or minor misunderstandings. Nonetheless, even if you are certain your tax affairs are fully compliant, it is essential not to disregard these letters, as doing so could prompt HMRC to launch a formal investigation. If you find yourself in this situation, seeking guidance from a qualified professional adviser is highly recommended.

Other types of letters

• Some HMRC ‘compliance’ letters are much more serious than others, particularly those issued by HMRC’s “Fraud Investigation Service”, including under Code of Practice 8 and Code of Practice 9. Taxpayers in receipt of these should take immediate specialist professional advice. Please see our separate guidance on Code of Practice 9.
• Whilst most of these letters are genuine, unfortunately, scammers are increasingly impersonating HMRC to defraud individuals and businesses. HMRC’s list here helps taxpayers to check if the letter is legitimate. HMRC stresses that they never ask for financial information by text, phone, or email. Always log in to your official HMRC online account to view digital letters. If you are in any way unsure, consider taking professional advice.

3. Gather relevant information

If the letter is a compliance check, HMRC may request income and expense records, bank statements, or business financial statements. Compliance checks end with HMRC confirming everything is accurate, or in identification of an error or omission.

In the case of a ‘nudge letter’, you should consider reviewing your documents to identify any potential areas of discrepancy, or omitted income and/or gains.

It is important that you retain copies of the records which underpin your taxation affairs, including copies of the letter received and any further correspondence. Keeping these records digitally is recommended to ensure safe storage.

 4.  Seek advice from an advisor

If you have received a letter which concerns you, or you consider you have made an error while dealing with your tax affairs, don’t panic, you are not alone!

HMRC deal with thousands of disclosures each year. However, these letters must be taken seriously, and careful and expert handling of any enquiries or compliance checks is essential to ensure that you are protected and to ensure that any errors are rectified as efficiently as possible.

 Any taxpayers in receipt of these letters should seek expert advice.

5.  Respond appropriately

You should consider what HMRC is asking you to do in the letter, and consider carefully. If you have instructed an adviser, then they will consider this on your behalf and liaise with you to draft a response.

Some of the things you should consider are:

• The deadline: missing deadlines can lead to penalties.
• Whether HMRC’s request is valid and reasonable: if HMRC are ‘out of time’ to open an enquiry, their request may not be valid.

To summarise

Receiving a letter from HMRC doesn’t mean you’ve done anything wrong; however, you do need to act thoughtfully and promptly. The key steps are:

• Read the letter carefully and understand the expectations and deadlines.
• Check the letter is legitimate.
• Seek professional advice where you are unsure.
• Gather and retain information.
• Respond to HMRC in any instance to ensure the matter is concluded.

Speak with our Specialist Tax Dispute Resolution team

Our specialist Tax Dispute Resolution team is expert in dealing with all types of HMRC enquiries, disclosures and investigations. Our market leading, national, team has a huge breadth of experience in dealing with complex matters and would be happy to help.