09 February 2023 Issue 1 Danielle Ford and Riocard Hoye

Nudge theory

Danielle Ford and Riocard Hoye explain what approach should be taken when a UK taxpayer receives a Euro Pacific Bank nudge letter

Following the liquidation of Euro Pacific Bank (the Bank) in 2022, His Majesty’s Revenue and Customs’ (HMRC’s) Fraud Investigation Service has launched a series of tax enquiries, criminal investigations and intelligence operations into individuals in the UK suspected of using the Bank’s services and products to evade tax.

Although HMRC has access to more information than ever before, it does not have the resources to open full enquiries into each taxpayer it identifies as a risk. Nudge letters provide HMRC with a cost‑effective solution to communicate with a large number of taxpayers and are sent when HMRC has grounds to believe that a taxpayer’s affairs are not in order and has identified a potential loss of tax.

Communications

Advisors may not always receive a copy of nudge letters from HMRC. The communications are aimed at encouraging taxpayers to review their own tax affairs and voluntarily correct any errors or omissions. Advisors are best placed to undertake the review, however, using their tax knowledge to ensure all filings are correct and complete.

In the authors’ experience, there can be inaccuracies with the source information or interpretations made by HMRC. The action required will depend on each individual circumstance, as there is no ‘one size fits all’ solution.

Statutory powers

It is important to note that although a nudge letter is not a statutory enquiry into a taxpayer’s affairs, these letters should not be ignored. This does not mean signing and sending the requested certificate to HMRC, as there is no statutory requirement to do so. If HMRC subsequently opens an enquiry and finds an error, failure to act following receipt of a nudge letter could lead to higher penalties being charged. It is extremely likely that an individual who ignores a nudge letter in relation to the Bank will face an HMRC investigation.

Please login to access this content

If you are not a member, find out more about joining STEP or subscribing to STEP articles.