An HMRC nudge letter: what it actually means, what it does not, and how to answer it
A letter from HMRC suggesting your tax affairs may be incomplete is unsettling, and the temptation is either to ignore it or to sign whatever it encloses. Neither is wise. Here is what a nudge letter is and is not, where HMRC's information comes from, how far back a correction has to go, how penalties are measured, and how to answer in the weeks you have.
What a nudge letter is
HMRC call them one to many letters. They are sent in batches to people whose data matches a risk HMRC have identified: an overseas account, income from an online platform, a property sale, or a second income that never reached a return. A nudge letter is not a notice of enquiry into a return under section 9A of the Taxes Management Act 1970, and it is not a formal information notice. It does not of itself oblige you to reply. That is the limit of the reassurance. HMRC send these letters because they hold information about you, and a letter left unanswered is often followed by one that does carry statutory force.
Where HMRC's information comes from
Two sources account for many of the letters. Under the Common Reporting Standard, financial institutions in participating countries report accounts held by UK residents, and HMRC match what arrives against tax returns. Under the reporting rules for digital platforms, which began in the UK on 1 January 2024, platform operators collect details of the people selling through them and report to HMRC, with the first reports, covering 2024, due by 31 January 2025. The rules reach people letting accommodation and providing services through platforms as well as those selling goods. HMRC's guidance is careful to say that a report does not mean tax is owed. It does mean HMRC can see the income, and that a letter may follow if the income is missing from a return.
The certificate you do not have to sign
Some letters enclose a certificate of tax position, asking you to declare that your tax affairs are complete and correct. It is not a statutory document. The Chartered Institute of Taxation has reported that HMRC accept there is no legal means to compel anyone to sign it, and that a letter will be accepted instead. The professional bodies advise real caution before signing, for a simple reason: a declaration that later proves wrong can count against you when penalties are set, and a knowingly false one carries graver consequences. A short letter setting out your position, or a disclosure, answers HMRC's question without that risk.
Three honest answers
There are only three positions to be in. Everything is right: the overseas account was already declared, the platform income was household items sold for less than they cost, or the property sold was a main residence covered by relief. Reply briefly with the explanation and keep the evidence. Something is wrong: make a disclosure, which is the subject of the rest of this piece. Or you do not yet know: gather the statements before answering, and if the reply date in the letter is close, tell HMRC that you are doing so. What does not work is a fourth position, in which the letter goes into a drawer.
How to put it right
For most individuals the route is HMRC's Digital Disclosure Service. You first notify HMRC that you intend to make a disclosure. You then have 90 days from the date HMRC acknowledge the notification to make the disclosure itself, and the payment should go with it unless you have agreed more time to pay. Landlords disclose through the same service under the Let Property Campaign, and overseas income and gains go through the Worldwide Disclosure Facility. If HMRC have already opened an enquiry, the disclosure goes to the officer dealing with it instead.
How far back the correction goes
The number of years depends on your behaviour, not on the letter. Where you took reasonable care and still got it wrong, HMRC can collect tax for a maximum of four years. Where the error was careless, six. Where it was deliberate, or where you should have registered for Self Assessment and did not, up to twenty. For offshore matters, HMRC's guidance gives twelve years where the error was not deliberate, if the offshore element made the loss harder for HMRC to find. Interest is charged on every year from the date the tax was due until it is paid, and it is calculated daily.
Prompted or unprompted, and why it matters
Penalties for an inaccuracy turn on two things: the behaviour behind it, and whether the disclosure was prompted. For careless errors the range is 0 to 30 per cent of the tax if the disclosure is unprompted, and 15 to 30 per cent if it is prompted. For deliberate errors it is 20 to 70 per cent unprompted and 35 to 70 per cent prompted, and for deliberate and concealed errors 30 to 100 per cent and 50 to 100 per cent. Offshore penalties can go as high as 200 per cent. Within each range, where you land depends on the quality of the disclosure: telling HMRC, helping them and giving access to the records. HMRC's Compliance Handbook, at CH82421, says that a national campaign does not of itself make a disclosure prompted. It also says that a disclosure is prompted where HMRC already hold information under an automatic exchange agreement that would lead to the error being found, unless the person had no reason to believe the information had been supplied. A letter telling you that HMRC hold overseas data about you removes that reason. The prudent assumption is that a disclosure made after a letter of that kind will be treated as prompted, which makes the quality of the disclosure the part you control.
An illustrative case
The figures are illustrative. A higher rate taxpayer who files Self Assessment returns has let a flat through an online platform since 2020/21 and has not declared it, through carelessness rather than intent. The profit is GBP 5,000 a year, so the tax for each year is GBP 2,000. Five years are within the six-year limit, so GBP 10,000 of tax is due, with interest on each year from its own due date. If HMRC treat the disclosure as prompted, the penalty falls between 15 and 30 per cent of the tax, GBP 1,500 to GBP 3,000, depending on the quality of the disclosure. Had the same disclosure been made unprompted, before any letter, a careless penalty could have been reduced to nothing.
What to do in the next fortnight
Read the letter for two things: the reply date, and the precise subject HMRC have in mind. Do not sign any enclosed certificate until you know your position. Collect the evidence: overseas bank statements, the annual summary each platform operator must give you of what it has reported, and completion statements for any property sold. Decide which of the three positions you are in. If it is a disclosure, notify HMRC through the Digital Disclosure Service and diarise the 90 days from the acknowledgement. Set aside the tax, the interest and a realistic penalty, rather than the best case. And keep a copy of everything you send, because the reply to a nudge letter is the first document HMRC will read if the matter goes further.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.