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Letter through the door | AccountingWEB | HMRC launches BADR nudge letter campaign
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Agents frustrated with HMRC nudge letter campaign

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Amy Chin looks at why HMRC’s sending of one-to-many letters is “notoriously headache-inducing” for agents and unrepresented taxpayers.

21st Jun 2024
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HMRC has launched a one-to-many (OTM) letter campaign targeting individuals it believes may have overclaimed Business Asset Disposal Relief (BADR) in their 2022-23 tax returns by exceeding the lifetime allowance for the relief.

The department's wealth team has sent letters to taxpayers and their agents inviting them to check and amend their self assessment (SA) tax return, remove or amend the BADR claim and pay any additional Capital Gains Tax due.

The letter warns: "It's likely that additional tax will be due. If you do owe us tax, we'll charge interest on any tax that's paid late."

Lifetime Allowance

BADR, the artist formerly known as Entrepreneurs' Relief (ER), is a tax break that – subject to qualifying conditions – reduces the amount of CGT an individual must pay on selling their business from 20% to 10% of qualifying gains.

BADR can be claimed for gains up to a maximum lifetime allowance of £1m per individual taxpayer. Any gains made once this limit has been reached will be subject to CGT rates under normal asset disposal rules.

The lifetime limit for ER was previously far higher at £10m. In 2020, resisting pressure to scrap the relief altogether, the then-Chancellor Rishi Sunak opted to slash the maximum amount an individual can claim under the relief in their lifetime to £1m. The relief was also rebranded, with its name changed in the Finance Act 2020 from 'Entrepreneurs' Relief' to 'Business Asset Disposal Relief'.

The rebranding did not reset the lifetime allowance, so any previous gains on which ER was claimed still count towards the limit for BADR. Many entrepreneurs had therefore already far exceeded the current £1m limit before BADR even existed.

A taxpayer who sold their qualifying business before the introduction of ER in April 2008 may have been eligible to claim Business Asset Taper Relief (BATR). Although this also reduced the effective rate of CGT to 10% and was subject to similar conditions, claims made under BATR are not included in the lifetime allowance for BADR.

Anxiety-inducing tactics

HMRC's use of OTM letters as an anti-avoidance tactic is notoriously headache-inducing for agents and unrepresented taxpayers.

All too often the department appears to employ a scatter-gun approach, sending out generic letters to as many potential 'culprits' as possible. The wider the net is cast, the fewer clues can be included in the letters as to whom they may refer to and why, leaving the recipients scratching their heads.

For agents this approach creates extra work to try and determine which clients the letter relates to before they can even begin the process of checking whether the offending tax returns contain the error(s) referred to.

Meanwhile, the lack of explanation and detail offered in the letters, and the technical jargon used, has the potential to send an unrepresented taxpayer into a tailspin of anxiety when it lands on their doormat.

Frustrated agents

Chris Watts, associate director at Old Mill, expressed frustration at HMRC's use of nudge letters which he says puts the onus on agents and taxpayers to do the tax authority's checks for it.

He told AccountingWEB: "We received three of these letters and in each case are satisfied that BADR was correctly restricted in 2022-23 to allow for any previous claims under either BADR or ER, with appropriate narrative in the white space disclosure to show this.

"None of the letters are issued as s.9A TMA 1970 enquiries despite being in time to do so, but just invite us to look again and confirm if the claims are correct and confirm the reasons why.

"Our own records show there are no discrepancies on the claims that were made. Frankly, if HMRC think they are wrong, is it not their job to formally check and either raise a formal enquiry, or a discovery assessment, if their information suggests otherwise?

“They are effectively making the taxpayer/agent do the work for them through an informal information request (rather than sch 36 which could be formally appealed). Not all nudge letters are incorrect, but many get sent back to HMRC on the basis there is no evidence required to prove them wrong."

Dedicated support team

HMRC told AccountingWEB that letters will be sent to around 800 customers. The recipients are invited to check the BADR claims they have made and amend their SA tax return to withdraw or restrict the relief to bring them back below the £1m limit.

A dedicated phone number and email address has been set up for customers and their agents, with details of these included in the letter.

The hope is that sending these letters to customers where HMRC has identified claims totalling more than £1m in their lifetime should prevent the need to open enquiries.

An HMRC spokesperson said: “We are highlighting the importance of tracking claims made for Business Asset Disposal Relief to help customers get their tax right.

“We regularly send letters to educate, remind or prompt them to review their tax affairs, particularly where we have information to suggest there are specific risks to the payment of tax owed.”

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Replies (18)

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By carnmores
21st Jun 2024 11:15

i'm not at all frustrated by this . if HMRC think there is a problem there probably is

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Replying to carnmores:
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By BryanS1958
24th Jun 2024 10:45

You have much more faith in HMRC's systems than I do!

Thanks (4)
Replying to carnmores:
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By Ian McTernan CTA
26th Jun 2024 09:31

Do you even work in tax or accountancy?

That sort of blind faith in a department that gets so much wrong so often, that we then have to spend many hours trying to sort out...

Thanks (3)
Replying to Ian McTernan CTA:
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By carnmores
26th Jun 2024 09:49

yes since 1973, thanks for your condescension

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Replying to carnmores:
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By Amy Chin
26th Jun 2024 21:51
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By Paul Crowley
21st Jun 2024 15:06

They may as well write to all taxpayers to tell them that they need to check that they have not failed to pay the correct tax due for the last four years.
It seems to me that HMRC cannot do the arithmetic and do not have the expertise to make targeted enquiries.
Good news for the dubious taxpayer being made public.

Thanks (7)
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By FactChecker
21st Jun 2024 16:00

An HMRC spokesperson said: “We regularly send letters to educate, remind or prompt them to review their tax affairs, particularly where we have information to suggest there are specific risks to the payment of tax owed.”

Fair enough, but ...
... according to Chris Watts: ".. the letters .. invite us to look again and confirm if the claims are correct and confirm the reasons why."

It's that double-confirmation that's invidious.
You do the checks (as per reminder/prompt to review your tax affairs) and find absolutely nothing wrong - BUT still have to re-confirm that there's nothing wrong in what you filed AND justify your reasoning!

Either the letter is a nudge (but in itself with no legal standing) OR it is an s.9A TMA 1970 enquiry - but this is cake-and-eat-it behaviour where agents are given extra unpaid work by those who are paid to do it!

Thanks (9)
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By D V Fields
21st Jun 2024 22:42

The letters are auto generated and generic so get treated as any other spam correspondence. If you want to engage in correspondence then it should be along the lines of the letter is not in keeping with the HMRC Charter. When you submit tax returns you assert that the information is correct. HMRC rightly expect this so any letter cannot be generic but must be specific otherwise it breaches its own Charter - the one they don’t know exists!

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Replying to D V Fields:
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By Justin Bryant
24th Jun 2024 10:48

No. Go to CIoT website on how to deal with these HMRC nudge letters. The last thing you should be doing is anything to risk annoying HMRC!

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Replying to Justin Bryant:
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By BryanS1958
24th Jun 2024 10:54

CIOT and ICAEW are the last organisations we should be going to for advice. They are working hand in hand with HMRC to help bring in MTD ITSA and other idiotic legislation, instead of fighting against such initiatives.

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By BryanS1958
24th Jun 2024 10:51

As with every other generic e-mail and letter from HMRC, it just goes straight in the shredder, or is deleted.

HMRC also seem fond of sending letters with a tax reference and no client name. These are sent straight back, with a request for the client name. We do not have time to waste, at our client's expense, going through our systems to trace who the client is.

Thanks (4)
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By Rgab1947
24th Jun 2024 11:33

I hate getting nudge letters with no detail so I essentially have to check all clients to see if there is an issue we are not aware of.

How difficult is it to put the UTR number and name on the letter.

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Replying to Rgab1947:
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By FactChecker
24th Jun 2024 18:18

You're missing the point (from HMRC's perspective) ... as in:
* One cheap letter is all they have to do;
* An unknown number (but certainly >1) of taxpayers are made to do some extra work AND if any of them are later found to have got anything wrong then they've now lost any opportunity to claim 'carelessness'!

Thanks (4)
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By Ian McTernan CTA
26th Jun 2024 09:35

I'm frequently tempted to reply to these letters saying 'thank you for your generic letter of XX date. I would be happy to perform the service you requested, my estimate for the fees involved are £1,000. Upon receipt of these funds from you I will perform the work you have requested.'

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By mwalker
26th Jun 2024 13:58

Maybe HMRC should change the description their activity to be: one-TOO-many (OTM) letter campaign...

Thanks (2)
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By JackH
27th Jun 2024 13:06

Glad Carnmores has faith in HMRC. I don't. Although the Probate service and HMLR are even worse.

Just put this below on the Customer Forum. Perhaps I should write 800 nudge letters to HMRC STRANDLONDON WC2R 1LB or just one letter before claim to the General Counsel and Solicitor to HM Revenue and Customs (pursuant to Annex A of the Pre-Action Protocol on Judicial Review) seeking a mandatory order to respond to postal communications.

"I wrote to BX9 1GX on 12 March and 2 May. I wrote a formal complaint to BX9 1AB on 3 June. All first class and 2 tracked. No acknowledgment or reply to any ofthese. I telephoned once at 5.15pm and made contact at 5.45, was asked to wait while the matter was looked into, but at 5.59 I was cut off automatically with a recorded message: "Thank you for calling. Goodbye". Is this normal behaviourfor a tax authority seeking payment of tax forwhich I have their receipt as having paid (copy sent to them on 12 March) whose computer continues to send demands."

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Replying to JackH:
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By carnmores
28th Jun 2024 12:03

That's not what I said. if you look at my recent posts you will see that I am far from satisfied. Nick

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Replying to carnmores:
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By Paul Crowley
30th Jun 2024 14:01

She is someone who chooses not to engage with any answers so very unlikely to have read any of your contributions.
I agree that HMRC will have identified an area of probable error, but they do not have the people to do the enquiries.
If only HMRC could send useful letters to their agents identifying the client.
I have no issues with serial entrepreneurs being expected to comply with the rules. None of them will be my clients.

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