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Confusion and alarm from HMRC’s nudges

HMRC has been sending generic letters to nudge taxpayers into reviewing their last tax return, but the agent’s copy of the letter doesn’t always specify which taxpayer it relates to.

7th Jan 2021
Tax Writer Taxwriter Ltd
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Why

HMRC uses data from many different sources to cross check information reported on self-assessment tax returns. It could open an enquiry every time a mis-match is found, but this is expensive in terms of person-hours, and the time taken to collect any additional tax.

Low cost solution 

As an alternative HMRC is experimenting with sending a standard letter to the taxpayer where the computer finds that the third-party information doesn’t match the tax return. The letter doesn’t state exactly what is missing from the return, but it is supposedly designed to nudge the taxpayer to review and correct the return where necessary. HMRC call these “one to many” letters. 

This approach is light on HMRC manpower as the nudge letter is generated automatically by HMRC’s Connect computer system. The onus is placed on the taxpayer and their tax agent to investigate the issue and take any action required.

No information

Unfortunately, where the HMRC letter is copied to the tax agents it doesn’t always state which taxpayer the letter refers to.

AccountingWEB member PaulinLeeds had just such a missive from HMRC in November 2020. It asked him to check his client’s pay and benefits in kind, as the figures on an earlier tax return don’t agree with the employer’s RTI return. The letter contained no client reference or name, and failed to include any HMRC contact details such as an address or telephone number to respond to.     

Other AccountingWEB members have reported receiving similar generic letters from HMRC, some of which do include an HMRC email address to reply to. 

What to do

It is extremely frustrating for tax agents, who are working all hours to submit the SA tax returns before the end of January, to break off and deal with such HMRC letters. Should the tax agent waste precious time trying to find out which client the letter refers to, or ignore the issue and potentially leave a client with a large penalty for non-compliance?        

Not an enquiry

It is important to note that the HMRC nudge letter does not amount to a formal opening of a tax enquiry. However, the CIOT recommends that taxpayers, and their agents, should not ignore the letter as HMRC may follow-up if the earlier tax return is not amended. 

Which issues?

HMRC has been comparing the 2018/19 SA tax returns to various data sets and has been sending nudge letters covering a wide variety of issues since October 2020. The CIOT has kept a log of all the nudge topics covered, including examples of the letters and information sheets, which can be accessed from the links in the table below.

Lab rats

The whole one-to-many (OTM) approach is an experiment, as is made clear by the HMRC compliance handbook para CH60270.

The HMRC officer is instructed to pick a population to target and compare the behaviour of the recipients of the letter to a control group. The success factors for the experiment are listed as:

  • increase in profit
  • increase in tax paid
  • expenses reduced
  • the taxpayer’s behaviour has changed – will any action the customer takes be classed as a change in behaviour?
  • increase in registrations
  • a taxpayer amends a return
  • taxpayer has filed on time due to the approach.

Oddly the correcting the tax return to include additional expenses or to claim a missed allowance does not appear to be a positive outcome for HMRC.       

Nudge letter topics

Which taxes Which taxpayer   Transaction / issue Data from:
CGT Individuals Sale of residential property which was not their main home, in 2018/19 Land registry
CGT Individuals Property described as other assets SA returns 2018/19
Income tax Employees Benefits in kind from employment in 2018/19 P11d and RTI retruns
Income tax Wealthy individuals Investment income in 2018/19 Financial institutions
CGT Shareholders of unlisted companies Deferred consideration on the earlier sale of private company shares Companies House filings and stamp duty returns
Income tax employees Discrepancies with RTI returns employers
Incometax Directors of mid-sized companies Understated dividends or benefits Company accounts
Income tax and CGT Non-dom individuals Deemed domicile Earlier tax returns
Income tax and CGT Non-resident individuals Statutory residence test 2018/19 SA return
Income tax and CGT Individuals Outstanding tax returns 2017/18 notice to file
Income tax Individuals Foreign tax credit relief against employment income  2018/19 SA return
Income tax Individuals Overseas workday relief 2018/19 SA return
Income tax Individuals DTA relief 2018/19 SA return
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Replies (23)

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By ireallyshouldknowthisbut
07th Jan 2021 18:28

its abundantly clear HMRC does not value our time, or clients time.

It matters little how many hours are wasted on hold with HMRC, dealing with their errors, struggling with their bonkers IT, dealing with vague fishing letters and generally messes they create.

At what point with "time tax payer has expended" be a metric worthy of recording?

Thanks (6)
Tornado
By Tornado
08th Jan 2021 12:39

Apart from the appalling errors and lack of detail on these generic types of letters, this continuing insistence by HMRC not to say what they think is wrong with a Return is only going to provoke a non-cooperative attitude from Agents right from the start

HMRC should just grow up and respect our profession and accept that we are here to help clients properly complete their Tax Returns and if something is missing from a Return then it is something we need to know about in order to fix it. Treating us like children will only make us treat HMRC like children too.

Fortunately on the few occasions this has happened in the past I have been able to speak to officers at HMRC who have told me what the problem is and in most instances it has been due to misinformation given to HMRC and/or misinterpretation by HMRC of the information they have.

If any of my clients receive such nudge letters which do not state what the problem is specifically then I will continue to take no action until HMRC do tell me what they think the problem is.

I have too few years left on this planet to waste time playing silly games with HMRC so they can play by themselves until they grow up.

Thanks (8)
Replying to Tornado:
By SteveHa
08th Jan 2021 17:22

I'm not generally one to defend HMRC, but on this I will at least defend the staff on the front line.

We in the profession should remember that front line staff are generally:

Not given access to the legislation
Not given training on how to interpret the legislation
Not given access to case law

Whilst they are:

Given access to inaccurate guidance
Given access to HMRC's inaccurate internal manuals

and more importantly

Just people trying to earn a crust, generally somewhat lower than we are making.

I will ignore letters that don't tell me who it's about. However, where there is ambiguity, I find a quick call (early in the morning) can yield results that we can work with rather than against most of the time.

Just this week, I received two promised call backs from the technical teams within 4 hours, and both issues resolved in those calls.

Thanks (3)
Replying to SteveHa:
Tornado
By Tornado
08th Jan 2021 17:50

I do agree that front line staff do the best they can under the circumstances, but the point here is that they should be properly trained and given adequate resources to do their job easily and efficiently and it is the fault of HMRC as a body this is not the case.

Spending less on fancy projects like MTD and more on well trained and efficient staff is the correct way to go and the Government can help by drastically simplifying the tax system as well.

Thanks (4)
By jon_griffey
08th Jan 2021 17:30

This is not helpful at all.

I have had 2 of my HNW clients receive the DTA letter in recent weeks. They had completed the non residence pages, but no relief had been claimed under DTA. So why on earth have they been sent the letter? I have had to waste time explaining this and convincing them that I have not made an error on their returns and despite what the letter says that they did not in fact need to get a Certificate of Residence.

As typical clients, they did not properly read the letter, but with a quick skim read certain phrases leap off the page like "get their tax returns right", "claim is not complete", "withdraw DTA relief", "compliance". They read no further and pick up the phone to me.

As a final insult, the covering page to us says "For more information about the required standards for agents, go to...." the clear implication is that they have identified that I am falling short.

Thanks (2)
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By Nickg
11th Jan 2021 09:44

Received one of these for one of my clients, phoned HMRC who told me what it exactly related to. They amended their records straight away. Trouble is it still took about 30 minutes. Time we cannot afford this part of the year.

Thanks (1)
Replying to Nickg:
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By johnjenkins
11th Jan 2021 10:43

Very similar to yourself. Client had given me payroll figures for 19/20 (when he left PAYE) instead of 18/19. So 18/19 tax return was wrong. I have had a few of these letters for clients, each one has the client details and what to check. I'm all in favour of these letters. Just remember none of us are perfect and I view these letters as an initiative to get things right on both sides.

Thanks (1)
blue sheep
By NH
11th Jan 2021 09:49

This is absolutely unacceptable and frankly baffling.

Who in their right mind would think a great way to get a taxpayer to correct a mistake is to tell them they have made a mistake but not tell them what that mistake is.

Its just absurd, its almost like a monty python sketch

Thanks (4)
Replying to NH:
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By Moo
11th Jan 2021 10:07

The reasoning behind this may be that clients will be prompted into correcting other mistakes that HMRC would never have found out about.
I agree with earlier posters that it is best to call HMRC first thing when their lines open and that when faced with one of these letters about unspecified errors a call to HMRC will generally result in them providing more clarity on what they are looking for - always assuming that the HMRC letter had some sort of contact details on it.

Thanks (1)
Replying to NH:
By Nick Graves
11th Jan 2021 11:08

NH wrote:

This is absolutely unacceptable and frankly baffling.

Who in their right mind would think a great way to get a taxpayer to correct a mistake is to tell them they have made a mistake but not tell them what that mistake is.

Its just absurd, its almost like a monty python sketch

No it isn't...

Thanks (1)
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By Moo
11th Jan 2021 09:59

Rather than just universally blaming HMRC incompetence can I suggest that we also impress upon clients that when they receive a letter like this from HMRC they:
1. Open it.
2. Read it, all of it. Then read it all again carefully.
3. Copy it to their accountant/tax agent even if the HMRC letter says we have been sent a copy. An emailed photo from their smart phone is fine, no need to have a scanner, fax or other office equipment.
4. Follow up a couple of days later with a call or email to accountant/tax agent to ask what needs to be done.

Thanks (0)
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By Donald MacKenzie
11th Jan 2021 10:07

Letters from HMRC that give inadequate information are not new. I had a lengthy correspondence with HMRC over a client company's CIS offset. I asked for say £18k to be applied against Corporation tax and they told me something like, "that amount does not match the value we show due." I had to write back to ask what they showed as due and the makeup. They came back with a total but not the items making it up. Months of hassle to discover one deduction suffered had not been reported to HMRC.

Thanks (1)
Replying to Donald MacKenzie:
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By johnjenkins
11th Jan 2021 10:46

It's quite weird how HMRC can give you information sometimes but they have always been not keen on giving info on CIS deductions. When they had the regional offices we just phoned, went through the deductions and sorted the problem out in 5 minutes.

Thanks (2)
Replying to Donald MacKenzie:
By Nick Graves
11th Jan 2021 11:15

Donald MacKenzie wrote:

Letters from HMRC that give inadequate information are not new. I had a lengthy correspondence with HMRC over a client company's CIS offset. I asked for say £18k to be applied against Corporation tax and they told me something like, "that amount does not match the value we show due." I had to write back to ask what they showed as due and the makeup. They came back with a total but not the items making it up. Months of hassle to discover one deduction suffered had not been reported to HMRC.

I've had that too.

Fortunately, I spoke to the officer with the brain that day and after a quick game of Battleships we established where the error had occurred. It was a transpo on the CIS voucher.

Unfortunately, there is no longer such a thing as a quick call to HMRC any more. Not least for all the time shouting "I know it's a [***] agents' helpline and it's for agents only which is why [***] dialled it". Futile, but it helps....

Thanks (2)
By tonyaustin
11th Jan 2021 10:29

Those who object to not being told what the omission is have obviously not come across a client who has deliberately not declared all their income. HMRC will often discover one omission from a third party and the taxpayer, not knowing what the omission is, will admit to other omissions. HMRC haven't changed their practice in 40 years, they are unlikely to change now! If you are satisfied that the return is correct, ignore the letter or write back and say so but be prepared for the client to suffer a higher penalty if you are wrong.

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By Rgab1947
11th Jan 2021 10:35

I got one for one of my clients (but which one?). To do with payroll.

As far as I know all my clients use approved software and were up to date so as I had no clue who and not prepared to go to all to check the software, so ignored it.

Can you imagine a firm with say 600 clients? Impossible.

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By Mr J Andrews
11th Jan 2021 11:41

It's fair to say that we need these little ''nudges'' to spell out the pathetic bias adopted by HMRC and another example of a rusty nail driven by HMRC's hierarchy into the US and THEM divide. Generally , the Revenue's Compliance Manual looks more and more like a mish mash put together by Walter Mitty whilst this OTM approach - arguably illegal from a TMA 1970 viewpoint - has been contributed by spin doctor Ivor Hedgebetter , meaning remaining Revenue staff further hampered with inability to carry out essential customer care , service and proper compliance.
Yes I have full sympathy for the remaining Revenue personnel pulling their hair out with this latest experiment - as Rebecca correctly terms the debacle. But that must not let our administration , time and valuable client attention suffer.
If the tax agent's letter doesn't spell out the client[s] concerned , a formal complaint is in order . Onus back on HMRC . Similarly if the OTM is clearly barking up the wrong tree and some wires crossed , the Revenue should be demanded to provide some explanation - which they are obliged to provide .
Bear in mind that these OTMs are expected from the 'Front Line' with little or no experience of the targets involved and are expected to seek guidance help from the HMRC's OTM Design Community Team and also seek assistance from KAI , not a footballing son , but the Revenue's ''Knowledge, Analysis & Intelligence'' Team , with this '' One-To-Many '' approach. God knows where these extra bodies are coming from You really couldn't make it up - and perhaps rephrase the experiment as ''One -Too-Many''.
The bias mentioned is made particularly clear in true Trumpesque fashion at the CH guideline 600420 to Revenue staff ''........ You should word the message so that it will PROVOKE , without forcing, the CHANGE YOU ARE LOOKING FOR , An effective message will prompt the customer to IMPROVE THEIR BEHAVIOUR......''
Not so much guilty until proven innocent but the guilt must exist and we must correct it.

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Replying to Mr J Andrews:
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By raycad
11th Jan 2021 20:46

Completely agree. This is straight out of Alice in Wonderland: "No, no, said the Queen: sentence first, verdict afterwards!"

I had one of these last week. No client name, no suggested source: Nudge, nudge, wink, wink! And I know precisely which client they are alluding to. It was the one who received an SA Enquiry a couple of months ago in which HMRC alleged that the car scale charge had been underreported. But it was HMRC who had got their sums wrong! They had taken the car scale charge for the last of three vehicles used in the year but did not (as the employer did) time-apportion it to seven weeks worth of use! This, despite the fact that the P11D had correctly shown the total scale charge figure on page 1.

So this wasn't a case of carelessly launching an enquiry 'cos the P11D showed a higher amount than the return. Someone had actively "over-ridden" the P11D box figure and misinterpreted the workings that accompanied the P11D.

Enquiry has now been closed, what passes for an apology received and a Redress claim duly lodged. But to then get one of these bloody "Nudge" letters when it was an HMRC error all along just makes my blood boil! Obviously, HMRC has my client's details on it's computer as a suspect "offender" and my firm's details as the obliging/careless tax agent. Furthermore, they've clearly put this onto their system whilst the Enquiry was still in progress. Sentence first .......... !!

I plan to send the letter back to them with a secondary complaint but why should I have to spend time doing this, on top of the time already spent in putting together the client's Redress claim, which involved billing him, making sure he paid and then sending in evidence of that with the claim! I'm absolutely spitting feathers.

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Morph
By kevinringer
11th Jan 2021 13:10

When an (anonymous) letter is sent to the agent, does the client receive a copy saying 'a copy has been sent to your agent'? If so, some clients will think 'oh, my accountant will be dealing with this, I won't disturb them because I know they're so busy dealing with covid, I know my accountant will contact me if they need any info'. The accountant won't contact the client because they don't know which client the letter is for. So nothing will be done.

Thanks (1)
Morph
By kevinringer
11th Jan 2021 13:12

Last spring HMRC issued hundreds of thousands of tax credit renewal letters that omitted a key figure. So HMRC had to send a second letter containing the missing figure. HMRC now need to do the same with they anonymised letters but this time making sure they state who the client is. HMRC don't need to bother checking whether the original letter included the client's details, just issue the whole lot.

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By moneymanager
11th Jan 2021 13:35

Bin them.

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By Ben Alligin
11th Jan 2021 20:38

I've just had a variation on this theme. Instead of the nudge letter, HMRC very kindly/unilaterally corrected the 'error' on a submitted tax return. The amended tax calculation now 'correctly' reports the omitted student loan deduction due to HMRC. The white box entry stating the date, time and reference from the student loan company when my client paid the outstanding balance off appears to have been ignored!!
We now have to write and tell the idjits to amend their amendment to the original return submitted reflecting all the information present on the original return. Why do we bother?

Thanks (1)
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By Ben Alligin
11th Jan 2021 20:38

I've just had a variation on this theme. Instead of the nudge letter, HMRC very kindly/unilaterally corrected the 'error' on a submitted tax return. The amended tax calculation now 'correctly' reports the omitted student loan deduction due to HMRC. The white box entry stating the date, time and reference from the student loan company when my client paid the outstanding balance off appears to have been ignored!!
We now have to write and tell the idjits to amend their amendment to the original return submitted reflecting all the information present on the original return. Why do we bother?

Thanks (0)