As UK earners and business owners, the onus is on us to keep accurate tax records and pay the right amount of tax each year. It’s also our obligation to formally declare our earnings, profits and losses to HMRC, however negligible they may seem. Unfortunately, if you’re receiving HMRC nudge letters through the post, it could be a surefire sign that something in your tax history isn’t adding up.
The team at UWM Accountants know just how worrying and stressful it can be to receive a nudge letter from HMRC. We also know that if you’re confident your taxes are in order, it can be tempting just to ignore the letter—yet doing so could land you in even hotter water.
UWM is here to help you make sense of HMRC nudge letters, whatever triggers them, and to provide you with the practical steps you need to get your accounts in order, address the issues raised by Revenue & Customs, and avoid any further action.
What are HMRC nudge letters?
HMRC nudge letters are more than just a reminder to pay tax, yet not quite a declaration of formal inquiry. They are, as the name suggests, designed to “nudge” UK taxpayers toward revisiting their accounts in order to ensure full tax compliance. HMRC nudge letters can be triggered by any number of activities or income sources, and should always be taken seriously.
Based on principles of behavioural economics and psychology, the purpose of a nudge letter from HMRC is to give you the opportunity to get your tax affairs in order without you, or HMRC, having to enter into a more formal (and costly) investigation.
The risks of ignoring HMRC nudge letters
You should never ignore a nudge letter. HMRC states that if no response to their letter is made within 60 days of receipt, they may then be legally obliged to open a compliance check, and in turn, potentially escalate the case to a full-blown formal inquiry. Risks of ignoring a nudge letter, therefore, can include legal action, costly financial penalties and reputational damage.
When and why are nudge letters sent?
The nudge letter was introduced by HMRC back in 2017, at a time when His Majesty’s Revenue & Customs was beginning to receive overseas banking information for the first time, via the Common Reporting Standard.
In order to tackle the amount of data pertaining to potential overseas tax non-compliance—without opening formal investigations for every case—HMRC sent out a batch of ‘nudge letters’ designed to give flagged individuals and businesses the opportunity to declare their overseas holdings/income themselves.
Since 2017, the range of reasons triggering a nudge letter has expanded to include any number of widespread tax avoidance or fraud issues. When an issue is brought to the attention of HMRC, nudge letters will be sent out in a large batch—hence their other name, ‘one-to-many’ letters.
Nudge letters are essentially the initial tactic employed by HMRC to recover unpaid or underpaid tax withoutincurring the costs of a formal inquiry. Though, as we’ll soon learn, a formal inquiry could still be on the cards should you fail to take these letters seriously.
Exploring income sources and actions which could trigger a nudge letter
You don’t need to have knowingly done something wrong to trigger a nudge letter from HMRC. Nevertheless, receiving one does mean that the UK tax authority has received data which brings your tax affairs into question. Below are some of the current and historic ‘triggers’ which may prompt a nudge letter being delivered to your door.
HMRC nudge letters: Overseas income
The initial batch of nudge letters sent out in 2017 pertained to overseas bank accounts held by UK residents. UK residents typically must pay tax on foreign income, which is why holding money in an ‘offshore’ account may sound alarm bells for HMRC. Earning income overseas, especially if that income goes to an overseas bank account, could be the reason HMRC are ‘nudging’ you to make sure you’ve properly declared your earnings.
HMRC nudge letters: Crypto currency
Cryptocurrency and crypto trading are two hot issues for HMRC in 2025. As digital, nonfungible assets, crypto tax has long eluded tax authorities all around the world, but no longer. Come 2027, HMRC will automatically receive reports from the cryptoasset market of all transactions involving UK taxpayers—but they’re already ahead of the game. If you invest or trade in cryptocurrencies, NFTs and the like, you may well receive a nudge letter urging you to revisit your past Capital Gains or Self Assessment declarations.
HMRC nudge letters: Online selling
Tax can also be complicated by selling online, especially on fully-digital global platforms like eBay or Etsy. Calculating the tax owed to HMRC from the money you make selling on eBay, for example, depends on what type of things you’re selling, how often you sell them, where they came from and a number of other behaviours you exhibit when selling online.
In order to ensure that online sellers are compliantly declaring their taxable earnings and paying the right amount of tax, HMRC nudge letters are liable to be sent to those who draw earnings from eBay, Etsy, Amazon, Vinted, Depop and a whole host of other ecommerce platforms.
HMRC nudge letters: Historic reasons
Above are but a small handful of the reasons and triggers behind HMRC nudge letters. Historically, nudges have been sent to UK taxpayers, business owners and employers for a wide variety of different reasons. These include, but are not limited to:
- Employers deemed to have overclaimed furlough payments under the Coronavirus Job Retention Scheme (CJRS).
- Companies claiming tax relief for Research and Development (R&D), with the goal of ensuring that the relief claimed pertained to genuine R&D.
- Individual taxpayers claiming ‘benefits-in-kind’ but whose P11D slip (sent to HMRC by their employers) suggested discrepancies regarding those benefits.
It is important to note that not every nudge letter HMRC sends is accusing the recipient of wrongdoing. For example, the Furlough Fraud nudge letters dispatched during the global Covid-19 pandemic asked employers to reply whether or not there had been an incidence of overclaiming.
How to know if a nudge letter is legitimate
Before we move on to how to respond to an HMRC nudge, it’s worth reminding readers that not every apparent nudge letter you receive is guaranteed to be genuine. As with any facet of financial life, there are those out there who would seek to exploit HMRC’s nudge tactic for their own personal gain. Before you take any action with regards to a nudge letter, it is imperative that you first verify its authenticity. You can use this checklist published by HMRC to do so.
What to do with a nudge letter from HMRC
Whilst there is no legal obligation to respond to an HMRC nudge letter, it must be taken seriously and a response should almost always be made.
Naturally, you may seek to reply to the nudge letter yourself, or otherwise redress your accounts in order to achieve compliance. Yet without professional tax advice, individuals who attempt to answer nudge letters by themselves risk triggering further non-compliance, legal complications, or, on the flip side, overpayment of taxes.
We would always advise you to ask your accountant or seek professional guidance before addressing HMRC nudge letters.
Seeking professional advice before you disclose
Regardless of whether you have in actuality underpaid tax, and whether or not you know that you are in the wrong (versus having made an honest mistake), your first move after receiving an HMRC nudge letter should be to seek professional tax advice.
Depending on the nature of the nudge, HMRC may ask you one of a number of things. For example:
- To review a recent Self Assessment return and ensure you have declared all taxable earnings.
- To review a Corporation Tax Return and pay any unpaid tax.
- To submit documentation pertaining to a specific tax issue (such as P11D documents or Furlough Payment claims, as in the historic examples listed above).
- To make a declaration or disclosure of accidental or conscious wrongdoing.
Oftentimes, even if the non-compliance raised by HMRC happened entirely by accident, you will need to make a Voluntary Disclosure to HMRC to correct the mistake. If you know that you are in the wrong, having consciously defrauded HMRC or avoided paying tax, it is of even greater importance that you seek professional help to avoid criminal prosecution.
Your chosen tax expert will advise you on the best disclosure option to take. There are many disclosure options available to you, including:
- The Contractual Disclosure Facility (CDF): An HMRC facility which may be able to provide protection from prosecution in tax fraud cases of conscious wrongdoing.
- The Worldwide Disclosure Facility (WDF): An HMRC facility available to you for disclosures in cases where earnings are held overseas.
- The General Digital Disclosure Service (DDS): An HMRC service for more general disclosures involving UK holdings, taxes and earnings.
Conclusion
HMRC has a dedicated ‘nudge team’ responsible for identifying areas of potential tax avoidance, and drafting nudge letters to encourage voluntary compliance. If you receive one of these HMRC nudge letters, it means that your or your business’s finances are being called into question.
Whilst there is still every chance you have done nothing wrong—neither accidentally nor on purpose—it is imperative that you don’t ignore these letters; doing so could lead to an official inquiry, costly legal fees, or worse.
The most effective action you can take right now is to seek the advice of a tax professional. Here at UWM, we have almost 50 years of experience assisting UK residents and businesses with their tax compliance, tax returns and more.
Take control of your situation, get in touch today to find out how to deal with your HMRC nudge letter.
