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HMRC nudge letters

HMRC has sent a letter headed ‘Your effective rate of tax’ to around 1,000 high net worth individuals, suggesting their returns indicate their effective rate of tax is below the average. Copies have been sent to authorised agents.

There are plenty of reasons why the effective rate of tax may legitimately be low for a particular taxpayer for a particular year. The letter makes no mention of the possible use of reliefs which have been claimed for losses, EIS (Enterprise Investment Scheme) investments, gift aid payments or pension contributions, any of which could affect the amount of tax paid.

The fact that the letters do not mention the above possibilities seems to indicate that ‘HMRC has not checked for such items on the tax return before writing to the taxpayer'. The letters may also unnecessarily prompt represented taxpayers to question their agent’s preparation of their tax returns.

It is also worth noting that the letters are about tax year 2011-12, for which, for the vast majority of taxpayers, the enquiry window is now closed and HMRC can only re-open that year if discovery provisions applied , ie, HMRC must have concrete information, which they do not.

In legal terms there is no obligation to reply to HMRC’.

The letter states: ‘Looking at the figures in your self assessment tax calculation for the year ended 5 April 2012, we can see your effective rate of tax is lower than the average for people with a similar amount of income to you. This means there could be something wrong with your self assessment tax return.’

The text goes on to ask recipients to check their returns for 2011/12 and contact HMRC if something is incorrect. HMRC says that unless it hears from the taxpayer within one month it will assume they have checked their return and found nothing wrong. The letter also mentions possible penalties for non compliance.

We have concerns about these letters, including the fact that many taxpayers will not readily understand what is meant by the effective rate and may be worried unnecessarily.


Stephen Tyas                             Stephen Ayres



Registered to carry on audit work in the UK by the 
Institute of Chartered Accountants in England and 
Wales and authorised and regulated by the 
Financial Conduct Authority for investment 

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