10 min read
What are HMRC nudge letters?
HMRC nudge letters are a type of “one-to-many” communication, targeting a wider audience of businesses or individuals within similar sectors. In this case, HMRC has targeted dog breeders. These letters do not necessarily indicate that you have made a mistake; instead, they remind you of your tax responsibilities and ask you to check to ensure you have paid the correct tax. HMRC may have insights suggesting that some operators may not fully declare income from selling or breeding – but it doesn’t mean you fall within that category..
Reasons you have received an HMRC nudge letter
You might receive a nudge letter from HMRC for a number of reasons, even if you have accurately declared all your income and filed taxes on time.
1. Errors in tax return
Even the most careful person can make mistakes sometimes. For instance, you might have mistakenly claimed a non-deductible expense or misreported your income. Due to some oversight like this, HMRC might have spotted discrepancies in your Self Assessment tax return.
2. A sudden increase in income
If HMRC has noticed a sudden rise in your income due to a successful breeding season, then HMRC might send a nudge letter to you. HMRC might seek confirmation that you have declared your income correctly.
3. Claiming incorrect expenses
Not every expense qualifies for a deduction. If you are unsure what counts as a deductible expense in dog breeding, HMRC might nudge you to review your claims carefully.
4. Not reporting your income properly
Income generated from dog breeding, including puppy sales, stud fees, etc., needs to be declared accurately.
5. No specific reason - just HMRC being proactive
At times, HMRC knows you are a dog breeder and wants to make sure you have paid the correct tax – and if you haven’t, they allow you to voluntarily disclose any discrepancies to avoid any HMRC penalties in future.
What should you do if you receive a nudge letter?
Getting a nudge letter from HMRC might cause concern, but here’s how to handle it efficiently and calmly. It’s important to note that this is not like an official tax investigation, but not reacting appropriately to a nudge letter can lead to further investigation and potential penalties.
1. Read the letter carefully
Take your time to understand the letter’s specifics, such as details and particular issues raised by HMRC. Pay close attention to any deadlines for responding to HMRC or submitting further information.
2. Assess your dog breeding activities
If you are a hobby breeder with occasional litters or a full-fledged commercial breeder, understanding your business model is crucial to determine the tax implications.
3. Gather relevant documents
Compile all necessary documents, such as invoices, tax returns, breeding records, and receipts, which are essential in demonstrating compliance with HMRC.
4. Seek professional advice
It is better to consult an experienced accounting firm specialising in tax matters for small businesses. They can fully assess your situation and help you navigate inquiries from HMRC.
Do dog breeders need to pay tax?
Whether you need to pay tax depends on the nature of your dog breeding endeavours. Here’s a clear overview:
1. Hobby dog breeder taxes
When dog breeding is a hobby, and your expenses exceed your earnings, typically, you don’t have to pay taxes to HMRC. Nonetheless, it is crucial to declare your income in your Self Assessment tax return.
2. Commercial dog breeder taxes
If your dog breeding serves as your primary income source, you fall under the category of commercial breeder. In this case, you need to register yourself as self-employed with HMRC and will be liable for income tax and National Insurance on your earnings.
Tax deductions for dog breeders
- Food and veterinary expenses
- Kennel costs and maintenance
- Advertising and marketing costs
- Travel expenses for shows or acquiring breeding stock
- Equipment and supplies needed for breeding.
How can Golding Accountancy help dog breeders?
At Golding Accountancy, we offer various accounting and tax services specifically designed for the unique needs of dog breeders and other similar businesses. These offerings include:
1. Record keeping and Self Assessment
We assist in setting up a comprehensive system to monitor all income and expenses related to your dog breeding business. This encompasses earnings from puppy sales, boarding services, and other sources of income. We offer expert guidance on completing your Self Assessment tax return, helping you adhere to the deadlines and avoid penalties.
2. Calculating tax deductions and late payments
Our tax experts can identify eligible tax deductions for dog breeders, covering food expenses, kennel fees, veterinary bills, and business expenses. If you have missed any tax payment deadline, we will guide you in making a late payment while minimising potential penalties.
3. Reviewing HMRC nudge letters
We are proficient in analysing any nudge letters received from HMRC and will provide tailored solutions for navigating the whole process. We will also evaluate whether you need to modify your tax return to address the issue highlighted in the nudge letter.
4. Liaising with HMRC
We can act as your intermediary, communicating with HMRC on your behalf while ensuring your interests are protected and resolving any potential issues efficiently.
