Nudge Nudge... Older readers will know of what follows the above but for us all it is important to understand the tax authorities understanding of a 'nudge' - usually coming in the form of a letter contained within the dreaded brown envelope. I have previously posted about the HMRC 'Connect' facility which gathers information from a large number of sources and which is leading to 'nudge' letters to a growing number of their 'customers'. The information gleaned from third parties may lead to HMRC suspecting omissions from tax returns - and resulting under payment of tax - and so writing to individuals to provide the opportunity to 'correct' matters. These letters are not random but recipients should not panic initially as there is no guarantee there has been an omission leading to an under-payment of tax. Recent 'nudge' campaigns include crypto assets, side hustles involving online sales, annual tax on enveloped dwellings - ATED - and no returns filed between 2017-20, high earners having not registered for self-assessment or not having filed a return for 2021/22 despite receiving a notice to so do. Another involves 'associated companies' in August last year; of particular relevance to those investors encouraged or even advised to not only use a company for the property enterprise but to use the 'one property/one company' strategy. For those unfamiliar with the 'asssociated company' rule and have more than one company or are considering the strategy, you should know how it works in practice. Companies - the owner[s] really - pay [corporation] tax on profits at the rate of 19% up to £50,000. From £250,000, profits are taxed at 25%. In between 'marginal rate' is charged - typically 24.5 - 26.5%. However, this only applies if the investor owns/holds a controlling interest in a single company. If the investor owns 2 companies, the £50,000 allowance [at 19% tax] is shared between both companies. This means 'marginal rate' applies at just £25,001 as opposed to £50,001. If the investor owns 4 companies, the £50,000 allowance is shared equally resulting in 'marginal rate' of 26.5% being levied at profits of just £12,500. It appears many investors and the people filing for them were unaware of the over-claiming of marginal rate relief. How you respond to a 'nudge' letter on this subject, often determines what follows next; regardless of this, expect further costs as well as more tax.

Posted by Chris Haley at 2026-04-15 10:31:21 UTC