HMRC ‘nudge’ letters target directors of SME companies

HMRC have a new campaign that seeks to identify undeclared dividends from SME businesses. This campaign is aimed at director shareholders who may have missed reporting dividends received from their company on their personal tax returns. Read on to learn more about what these letters mean and what you should do if you have received one. 

What is an HMRC nudge letter? 

A ‘nudge’ letter is a standard letter sent to a large group of UK taxpayers by HMRC. 

HMRC have been using this tactic more frequently to try and reduce the tax gap – the difference between the tax the government believe should be due compared to what is actually paid by UK taxpayers. 

A nudge letter is NOT a tax enquiry into an individual taxpayer’s affairs. It asks taxpayers to consider whether their tax affairs are up to date. HMRC are ‘nudging’ taxpayers that they believe may have more work to do to fully disclose an area of tax. 

Who might receive a letter?

When a company files its Corporation Tax return, HMRC’s computers can ‘read’ the accounts and identify if a profit has been made. If there is also a decrease in the company’s profit and loss reserve, HMRC infer that a dividend or distribution has been paid from the company to shareholders.  

HMRC links this company information to the personal tax return data of individuals who are directors of the company. In SME companies, directors are often also shareholders. HMRC then send out letters to those they suspect may have missed this dividend income from these types of companies from their personal tax returns.  

What should I do if I receive a letter?

This article was correct at time of publication.

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