Latest round of HMRC 'nudge' letters target directors of small and medium companies.

Article | Fiona Morgan | 29th February 2024

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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?

The letter gives 30 days (about 4 and a half weeks) to reply to HMRC to confirm the position. The nudge letter must be responded to, but PEM recommend that you DO NOT reply directly to HMRC yourself, where you may be asked to make binding statements that certify compliance over unspecified periods. Instead, you should get expert advice as soon as possible to establish your position and the best approach, whether this is to bring any matters up to date with HMRC or to respond that there is no action required.  

Not only will this approach mitigate any penalties that may be applied, but it will also ensure that you do not prejudice your future position.

If you have received a nudge letter from HMRC and would like advice on the next steps, or you would like support regarding other areas of your tax returns, then contact PEM today.  


This article was correct at time of publication.

About the author

Fiona Morgan

Fiona joined PEM in 2015 and is a Manager in our Private Clients team. She specialises in tax enquiries, internationally mobile clients, Read more …