The Chancellor announced a package of measures to tackle tax avoidance, evasion and wider non-compliance that is estimated to raise £1.7 billion over the next five years. The package includes a £79 million fund for additional staff to tackle more cases of serious tax fraud as well as wealthy taxpayers’ non-compliance. This investment is estimated to raise £725 million, and is in addition to the £292 million of additional funding announced at the 2021 Spending Statement.
HMRC challenges taxpayers’ liabilities through a series of campaigns and ‘nudge letters’. These focus on areas identified as being particularly at risk of fraud and error, and therefore most likely to generate significant additional revenues for the Exchequer.
As their name suggests, nudge letters are designed to prompt taxpayers to reconsider whether they need to pay more tax to HMRC. Usually, HMRC issues them when it has information that suggests tax returns are incomplete. This could be data from overseas tax authorities about people’s non-UK bank interest, or discrepancies between Companies House data and tax returns. Recent nudge letters include:
Letters to offshore corporates owning UK property whom HMRC considered failed to pay tax on property sales and other transactions
Letters to people who drive for online platforms such as Uber or Lyft, explaining that HMRC has information suggesting they did not disclose all their earnings from this work
Letters to landlords who HMRC considers failed to tell HMRC about all their rental income in 2020/21
Letters to companies claiming R&D tax relief encouraging them to review their claims
HMRC is also devoting resources to tackle fraudulent and erroneous R&D tax claims, undertaking detailed checks before paying out the claims, or investigating cases on which refunds were made where the claims appear excessive. These compliance checks are undertaken by HMRC’s Fraud Investigations Service and its new R&D Anti-Abuse Unit, amongst others.
Any taxpayers who receive these nudge letters or face an R&D investigation should seek specialist advice on how best to respond. How many years’ tax HMRC can collect or reclaim depends on why mistakes occurred. This also affects the levels of any tax-geared penalties.