In today’s digital age, scams pretending to be from HMRC are on the rise. These scams are becoming more convincing, and even the most vigilant taxpayers can find themselves second-guessing an email, text, or letter they’ve received.
We’ve outlined some practical tips to help you identify whether a communication from HMRC is genuine or potentially fraudulent.
Pay Attention to the Details
Genuine correspondence from HMRC typically includes specific details related to your tax affairs. This might be your name or company name, a reference number (such as your UTR), and clear information about the purpose of the contact.
Be cautious if you notice:
Generic greetings like ‘Dear Customer’;
Messages requesting sensitive information like bank account details, passwords etc.;
Spelling or grammatical errors;
An unusual tone, especially if it’s threatening or overly urgent.
Understand What HMRC Will and Won’t Do
While HMRC does contact taxpayers via email, text, phone, and post, there are clear boundaries to what they will ask for:
HMRC will not:
Ask you to make payments via gift cards, cryptocurrency, or money transfer services;
Threaten arrest or legal action for non-payment over the phone or text;
Send links in emails or texts that ask you to log in and submit personal details.
Any communication that includes these requests is almost certainly a scam.
Be Wary of Unexpected Calls or Messages
Scammers often create a false sense of urgency. If you receive a call telling you that you owe tax and must pay immediately, or risk legal consequences, hang up and take a moment to assess the call. Real HMRC calls do happen, but they will never pressure you to disclose personal details on the spot or make urgent payments there and then.
If you’re unsure, you can call HMRC back using the official numbers found on their website and not those provided in the message.
Exercise Caution with Emails and Texts
Even if an email or text appears to be from a legitimate sender, be cautious. Check the email address carefully (official HMRC emails often end in @hmrc.gov.uk). Avoid clicking on any links if you’re not 100% sure they’re safe.
What to Do If You’re Not Sure
If something seems off, it probably is. Here are some steps you can take:
Don’t respond, click links, or download attachments;
If you’ve received a call, make a note of the number and report it to HMRC or Action Fraud.
Check With a Trusted Tax Adviser
We regularly help clients verify HMRC communications and respond safely. If you’re in doubt about any message, it’s worth having a professional review it. It’s far better to double-check than to risk disclosing personal or financial information to scammers.
To Summarise
Genuine contact from HMRC follows clear patterns and knowing what to look out for can help you avoid fraud and protect your personal information.
Next Steps
If you’ve received a message, letter, or phone call that doesn’t seem quite right, feel free to contact us.
If you have borrowed money from your company, HMRC could be getting in touch!
If you’re a company director and you’ve ever borrowed money from your own business and that loan was later written off, there’s something important you need to know.
HMRC is now writing to directors whose loans may not have been reported properly on their personal tax returns. These letters relate to loans that were outstanding and then written off between 6 April 2019 and 5 April 2023. While the letters are addressed to individuals, the implications can quickly extend beyond the director’s personal tax affairs and affect the company too.
Even if you haven’t received a letter, this is a good moment to stop and ask: Are your director loans fully tax-compliant?
Why director loans matter to HMRC
Director loans are more than just internal transactions. If you’ve taken money out of the business and not repaid it, HMRC may treat that loan in the same way as income, and tax it accordingly. This can result in extra income tax for the individual, and potentially, additional charges for the company.
The concern for HMRC is that loans could be used to avoid income tax, especially if they’re never repaid. That’s why loans that are eventually written off, meaning the company no longer expects to get the money back, are now under much closer scrutiny.
Interest-free loans? There could be a tax charge
If a company lends money to a director without charging interest or charges below the official interest rate, it can create a taxable benefit for the individual which needs to be reported.
The director is usually responsible for any income tax that arises, while the company will have to pay Class 1A National Insurance. This is typically reported via a P11D form each year.
When a loan is written off, it can be treated as income
If a company releases a director’s loan, that amount can be taxed as if it were earnings. This brings a different set of tax obligations, including Class 1 National Insurance, which is paid through the payroll by both the director and the company.
However, if the company is classed as a ‘close company’ (one controlled by five or fewer people), and the director is also a shareholder, the written-off loan may be treated as a dividend rather than a salary. That could mean a lower tax rate for the director, but the distinction isn’t always clear-cut. Whether the loan is taxed as salary or as a dividend depends on the reason it was written off and the individual circumstances, and HMRC looks closely at this.
The Hidden Company Charge: Section 455 Tax
On the company side, there is a separate issue to consider. When a close company lends money to a director or shareholder and the loan isn’t repaid within nine months of the end of the accounting year, the company may have to pay a special tax called a section 455 charge.
This charge is equal to 33.75% of the outstanding loan and is paid to HMRC. It can eventually be reclaimed but only once the loan is repaid or formally written off. If the company failed to report or pay this charge in the past, HMRC can still demand it later, along with interest.
It’s also worth noting that where a loan is written off, the company is not allowed to claim a corporation tax deduction on the amount. In other words, writing off the loan could create a double tax hit: the company pays the section 455 charge and loses a potential deduction.
So, what should you do if you’ve received a letter (or even if you haven’t)?
If HMRC has contacted you about a director’s loan that was written off, do not respond without fully understanding the wider implications. You should first review how the loan was treated on your personal tax return, and whether the correct steps were taken by the company. We highly recommend consulting with a qualified tax professional in the first instance.
In many cases, directors might not even realise that a loan has been released. For example, if a debt is transferred to someone else, or quietly cleared off the books, it could still count as a release in HMRC’s eyes.
Companies should also take a step back and ask whether they have proper systems in place to track director loans, interest payments, and repayments. Do you know if any loans fall under the section 455 rules? Has interest been physically paid, or just added to the loan balance? Are there any older loans that have been written off without being reported?
If any part of this process has been handled incorrectly, it’s not just the director at risk, HMRC could choose to investigate the company too.
Speak to a tax adviser before you reply to HMRC
Whether you’re a director with a written-off loan or a business owner managing these issues on behalf of your company, it’s important to seek professional tax advice. Responding to HMRC without a full understanding of the tax implications could potentially make things worse, not better.
A coordinated approach between the director and the company is often the best way forward. With the right guidance, it’s possible to correct past mistakes, minimise penalties, and bring both personal and corporate tax affairs up to date.
Next Steps
We specialise in navigating complex tax rules, so if you need help or just want peace of mind, our team can help so get in touch.
If your income exceeds £200,000, or your assets total more than £2 million, you’re likely to be on HMRC’s radar.
It’s a position many successful individuals find themselves in, but with that success comes scrutiny.
There’s an entire department within HMRC dedicated to monitoring those ‘high-net-worth’ individuals: the HMRC Wealthy Team
The Role of HMRC Wealthy Team
Their role is to ensure that the UK’s wealthiest taxpayers are fully compliant and to recover any tax that might have been underpaid, whether due to oversight, complexity, or error.
So, while it might feel like your tax return is just another form to complete each year, HMRC may view it as a key piece of a much bigger financial picture.
Wealth Means Complexity, and Complexity Increases Risk
For wealthier individuals, financial affairs often aren’t simple. You may have income from multiple sources – perhaps a business, dividends, interest, rental property, and investments. You might have capital gains to declare or residency issues to navigate. This, and adding offshore interests or cryptoassets into the mix, increases the risk of something slipping through the cracks.
This is why the Wealthy Team exists. Statistically, the more moving parts there are in someone’s finances, the more likely it is that an error or omission will occur. And the more wealth at stake, the higher the tax HMRC stands to gain.
How does HMRC Wealthy Team know?
The Wealthy Team doesn’t work in the dark. They’re equipped with a powerful, AI-driven data system known as Connect. This tool analyses and cross-references vast amounts of information – from bank accounts, credit card activity and Land Registry data to overseas financial details, trust arrangements, and even travel records.
Thanks to international data-sharing agreements, HMRC also has visibility over income and assets held offshore. That includes rental income from overseas property, shares in foreign companies, or funds held in international trusts. Cryptoassets have also become a growing area of focus – and often an area where taxpayer’s misstep.
The point is this: HMRC can see more than ever before, and they’re using that visibility to act with increasing precision.
How do the HMRC Wealthy Team choose who to investigate?
There’s a common misconception that tax enquiries are a roll of the dice, that HMRC sends letters at random. That may have been the case years ago, but today, most enquiries are the result of highly targeted data analysis. If the numbers in your tax return don’t line up with the lifestyle you’re visibly living or the transactions you’re making, this could be a trigger for that brown envelope in the post.
And when an enquiry does land, it’s rarely straightforward. Even a relatively minor technical error can trigger months of back-and-forth with HMRC. According to the National Audit Office, for higher-value cases the average enquiry during 2023-24 lasted around 40 months! That’s more than three years of uncertainty, scrutiny, and stress.
The Most Important Advice? Put yourself in the strongest position from the get-go
Getting your tax return right the first time is the best piece of advice we can give, and engaging with a tax professional for assistance is crucial in ensuring this.
One of the most surprising statistics is that 28% of wealthy individuals are still not represented by a tax agent, so they are managing their affairs without professional support, despite the increasing complexity of today’s tax landscape.
Even among those who do have an adviser, it’s important to recognise that not all accountants and advisers specialise in the nuanced issues that come with significant wealth, such as offshore assets, crypto, or residency matters. In these cases, working with a firm that has specialist experience in your area can make all the difference.
And given the risks involved (including financial penalties, potential reputational damage, and years of investigation), this is one area where we believe expert advice is essential.
How ETC Tax Can Help
At ETC Tax, we specialise in helping high-net-worth individuals manage the compliance burden that comes with significant wealth. We regularly prepare complex tax returns for individuals with high-value or technical affairs, ensure their affairs are accurate, complete and defensible, with professional advice to back it up.
Having your return prepared by a specialist from the outset can be the difference between a quiet year and years of questions from HMRC.
We regularly work with clients who have:
Cryptoassets
Complex UK or international residency positions
Offshore assets or trusts
Property portfolios and capital gains
Multiple income streams and investment structures
If any of that reads true to you, now is the time to make sure everything is in order.
What if I have received an enquiry from HMRC Wealthy Team?
If that brown envelope does land on your doorstep, don’t panic, but do take it seriously.
For individuals with complex financial affairs, HMRC enquiries are not ‘DIY’ jobs. They require a deep understanding of tax legislation, knowledge of how HMRC operates, and the right negotiation strategy to manage the process effectively.
Next Steps
The best way forward? Get professional advice and do it as early as possible. We are happy to help at ETC Tax.
If you’d like to discuss your circumstances or simply ensure you’re in the best possible position before HMRC comes knocking, please do not hesitate to get in touch.
If you have received an HMRC nudge letter regarding your cryptocurrency transactions, it’s crucial to act promptly.
HMRC is intensifying efforts to ensure crypto investors pay the correct amount of tax, and these letters are part of a broader campaign targeting individuals suspected of underreporting or failing to declare their crypto gains or income.
It is important to act quickly, as ignoring this letter can result in hefty penalties, interest charges, or the dreaded brown envelope containing a lengthy tax investigation.
However, not to worry – as engaging with a qualified tax professional can ensure your position is properly considered and accurate, and help to reduce the risk of those unintended consequences.
Why Did You Receive a Crypto Nudge Letter?
HMRC has been gathering data from cryptocurrency exchanges and other digital asset platforms to identify individuals who may not have accurately reported their crypto activities.
The nudge letter serves as a warning that any undisclosed gains could lead to additional tax liabilities, interest, and penalties.
Over 8,000 nudge letters have already been sent out to those suspected.
Can HMRC Track Crypto Transactions?
Yes. HMRC has data-sharing agreements and access to crypto exchange records, allowing them to track transactions.
The UK government has also joined the international Crypto Asset Reporting Framework (CARF), enabling global data-sharing for tax purposes.
Action List: What to Do If You Receive a HMRC Crypto Nudge Letter
Ensure Your Transactions Are Accurate
Assess all your cryptocurrency transactions over the past few tax years.
Identify taxable events such as selling, exchanging, or using crypto for purchases.
Understand whether your gains or income were correctly reported.
Use Crypto Tax Software
Manual calculations can be complex, especially if you have multiple transactions.
There are plenty of known Crypto Tax Software tools that can help track transactions, calculate tax liabilities, and generate accurate tax reports.
We recommend even if you are using a tax software tool, to ensure that the data is looked over by a tax expert specialising in crypto taxation, which is where ETC Tax can help.
While crypto tax software is incredibly helpful, there is always room for error in data inputting and labelling your transactions correctly
As tax professionals, we can help you correct those errors and ensure any reports are as accurate as possible.
Communicate with HMRC
Do not ignore the letter, its important that you work proactively with HMRC.
A voluntary disclosure can help in this instance, in reducing any penalties and help avoid further consequences.
HMRC’s disclosure facility offers more favourable settlement terms for those who come forward voluntarily.
Next Steps
With HMRC’s increasing scrutiny and access to crypto transaction data, it’s more important than ever to review your tax position and ensure compliance. If you receive a nudge letter, take immediate action to review your transactions, seek professional advice, and rectify any discrepancies to avoid penalties. Please get in touch with us if you receive one of these letters.
Make sure you have your tax i’s dotted and t’s crossed as HMRC investigations are on the increase.
Over the past year, HMRC has significantly increased its tax investigations opening around 250,000 new enquiries. Many of these enquiries have been targeted at high-net-worth individuals (“HNWIs”) and small businesses.
By utilising advanced technology and artificial intelligence, HMRC can now identify potential under-reported taxes by cross-referencing data from various sources, including banks, estate agents, and social media. Similar powers are also used for offshore matters.
Will it be success for Labour?
According to the most recent polls, it is looking like Labour is heading for success in the general election, and they have stated that if successful, they plan to raise up to an additional £5 billion in tax annually by the end of the next parliament. So how will they do this?
Labour plans to support by a £555 million yearly investment in additional HMRC resources, focusing, perhaps unsurprisingly, on high-net-worth individuals (HNWIs) and larger businesses. Labour also intends to enhance HMRC’s authority when enforcing tax payments during ongoing investigations.
In 2022/23, HMRC recovered £39 billion from HNWIs, with even larger sums from bigger businesses, thanks to increased investments in staff and technology. These amounts are expected to rise further with the proposed changes.
Although there is to be a focus on large businesses, it is notable that small businesses represent the majority of tax avoidance cases, and additional resources will likely be allocated to address the recent decline in revenue from this sector.
Why is this Important?
These developments show the importance of taxpayers remaining vigilant regarding their tax obligations, as greater scrutiny from HMRC is anticipated.
The surge in investigations makes it essential for taxpayers to ensure accurate reporting of all income and gains. Complex tax affairs can increase the likelihood of errors, which can have significant financial consequences.
Submitting an incorrect tax return can lead to substantial penalties, calculated as a percentage of the additional tax owed. Penalties range from up to 30% for non-deliberate errors, 100% for deliberate errors, and up to 200% for deliberate offshore matters.
Additionally, late payment interest, currently at 7.75%, can be extremely costly if deadlines are missed.
HMRC Powers
HMRC’s investigations can be incredibly complex, with most of their enquiry and assessment powers being regime-specific and spread across various pieces of legislation.
This fragmented system adds to the complexity of the enquiry process, creates uncertainty, and can undermine taxpayers’ willingness to comply, potentially leading to unfair results.
HMRC is currently reviewing these powers to address these high levels of complexity.
Seek Professional Advice
The success of current investigation activities is anticipated to lead to more targeted campaigns, with ultra-high net worth individuals likely to be in HMRC’s focus.
HMRC will continue to broaden the scope for tax penalties, potentially affecting individuals who were previously not caught.
If your tax affairs are complex, seeking advice from a qualified tax professional is the safest option to ensure there are no easily avoidable errors.
Equally, any business or individual with unpaid tax needs to be aware that their chances of getting away with it are lower than they’ve ever been.
Next Steps
With tax investigations are on the rise it is important to get the right advice.
ETC Tax is here to help, so please do not hesitate to get in touch today.
We were approached by our client who had received a home-visit from HMRC, chasing a hefty tax bill of £29,000 dating back to 2001.
Issue
The client was at risk of having to sell their home to afford paying the tax bill. They could not understand where the amounts came from and why they were so high. They were also vulnerable, as they struggled with their health, so even small administrative tasks overwhelmed them. They contacted ETC Tax for help.
How we solved it
We collated all the clients facts and historical records in order to determine what tax years were chargeable and calculate the correct liability. We also applied the relevant legislation to consider HMRC’s powers of enquiry. We appealed the assessments on the basis they were merely based on estimates with no evidence to back up the figures.
The outcome
Due to our expertise and perseverance, we were able agree a reduced tax figure payable of £3,000, an amount that was entirely affordable for our client.
Without our help, he would sold his home to pay a tax bill that he never needed to pay in the first place.
Next Steps
Are HMRC letters keeping you awake at night then please do get in touch.
