Accounting advice for short-let landlords targeted by HMRC’s “nudge” letters

7 min read

Getting a letter from HMRC is rarely good news for landlords. It usually has to do with reminders, warnings, fines or worse. If you are among the thousand or so property owners who have received a “nudge letter” during February or March 2023. you might well be wondering: “What are my options now?”
Not to worry, though – Golding Accountancy will help you evaluate your best options for proceeding. And just in case you are new to the concept of a nudge letter, we have put together this quick guide for you.

What is the HMRC nudge letter?

A nudge letter, essentially, is a letter reminding a targeted group of people such as content creators, those seeking Research and Development Tax Relief, or as in this case, landlords of short-term property lets, of their requirement to declare income and pay the appropriate tax.  HMRC uses the term ‘One to Many’ or OTM, to cover these campaigns as it is essentially a single, general letter, which is sent to many people, irrespective of their actual taxation status.  HMRC has been using nudge letters since 2017.
This latest nudge letter campaign reminds short-term let landlords of their obligation to declare all of their rental income.  They see it as a way to spur landlords into responding by offering lowered penalties on the unpaid income if they review their taxes and send back a certificate of completion within the stipulated deadline (usually 30 days).
If the recipient does not respond, it could lead to further investigations, a fine or even criminal prosecution. HMRC has sent nudge letters to taxpayers with foreign bank accounts as well as those who hold non-domicile status. They have also been sent to crypto asset holders to remind them of the Capital Gains Tax due on the money earned from trading in crypto assets.
Other targets of nudge letters include:
  • Rollover relief claims on residential letting sales
  • Non-filing of annual tax on enveloped dwellings
  • Claims relating to research and development
  • Offshore corporations that own UK property
  • Outstanding Self Assessment tax returns
  • Omissions of income from let property
  • Omissions of investment income
  • Omissions of benefits in kind
  • Omissions of share disposals

The goal is to put the onus on the taxpayer to check that they have paid what they owe, thus giving them a chance to avoid any further repercussions.

How does HMRC gather evidence?

For short term let landlords, HMRC gathers data on transactions through platforms like Airbnb and Vrbo, which are required by law to store the data and financial transactions of its registered users.
Another source of data is government-approved deposit schemes. HMRC can use this to match landlord data against the data of those who file their Self Assessment returns and report property income.
For those who have submitted tenancy deposit amounts but have not declared their rental income, HMRC will calculate the annual rental revenue they are earning (based on the fact that the deposit amount is usually 4-5 weeks’ worth of income) and determine the owed tax based on that.

How to respond to a nudge letter

When you receive a nudge letter, you should verify that there has not been some mistake (which could happen if HMRC has incorrect or outdated information). Assuming everything is okay, there are three possible responses to the nudge letter:
  • All your affairs are up to date;
  • You have not declared any of your property income;
  • You have declared your property income, but not all of it.
In case of option 2 or 3, you will need to reexamine your affairs and send the Certificate of Completion to HMRC within 30 days. Once they have acknowledged its receipt, calculate and pay whatever tax you owe through HMRC’s digital disclosure service, within 90 days.
If your tax affairs are up to date, we recommend letting HMRC know within the stipulated deadline (we can help you prepare a statement in the proper format). If you do not respond, HMRC may take that as a cue to continue their investigations into your business – and if they uncover any evidence of undeclared property income, you could be subject to serious penalties.
These penalties are a percentage of the unpaid tax – and the difference between a disclosed underpayment and a concealed underpayment could be as much as 20-30%! If the lost revenue exceeds £500,000 it will likely become a COP 9 case that leads to criminal prosecution.  All of this goes to say – if you have not paid your taxes on rental income, pay up as soon as you can!

Let Campaign for Property

This is for you if you own a second property that you did not realise you needed to pay tax on (as is the case with many UK landlords). To participate in this, you will need to:
  • Let HMRC know that you will be making an income disclosure
  • Share all undeclared gains, income, tax and duties within 90 days of the notification
  • Let them know the final amount that you owe
  • Promptly pay that amount
If you can convince them that the non-payment was the result of a genuine mistake on your part, HMRC may just accept your payments without any further inquiries or penalties. They may also decide to let you off with only six years’ worth of underpayments.

What is more, if the amount you owe is a large one, they may let you spread the payments out rather than demanding it all upfront. Consult our let property campaign accountants.

How Golding Accountancy can help
Nudge letters are a cost-effective way for HMRC to ensure landlord compliance, and if you follow the instructions in one, you will save yourself a lot of time and money. We recommend working with tax professionals like our team at Golding Accountancy to craft a suitable response to your nudge letter. When you work with us, you can expect a ton of accounting tips for landlords, besides:
  • A full review of your case background;
  • The identification of any issues or loopholes relevant to your case;
  • Advice on appropriate ways to respond to HMRC so as to minimise the likelihood of a follow-up;
  • Calculation of the tax amount you owe, with adjustments for any allowances or claims;
  • Advice on any penalties that you might need to pay, as well as ways to keep the penalties as low as possible;
  • Serving as the go-between for you and HMRC at all times.
We have worked extensively with taxpayers across the UK and are fully qualified to handle all matters relating to nudge letters, however complex. And should you wish, we would be more than happy to continue advising you as your regular accountant. Contact us today!
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