HMRC uses data from many 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 it takes to collect any additional tax.
Instead HMRC is experimenting with sending a standard letter to the taxpayer where a mis-match in data is found. The letter doesn’t state exactly what is missing from the return, but it is 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 manpower as the letter is generated automatically by the computer and the onus is on the taxpayer and their agent to investigate the issue and take any action required.
HMRC is currently comparing the 2018/19 SA tax returns to various data sets and is sending out nudge letters covering the following issues:
- Deemed domicile
- Statutory residence
- Discrepancies with employer reported pay and benefits
- Disposal of residential property which was not the main home
- Investment income from financial institutions
- Deferred consideration on sale of private company shares
- Income of persons with significant control of a company
It is important to note that the nudge letter does not amount to a formal opening of an enquiry, but it does require action as HMRC may follow-up if the tax return is not amended.