HMRC Nudge Letters 2026: What They Are and What to Do

Over the past several years, HMRC has moved away from opening formal investigations as its first response to potential tax errors. Instead, it sends what are known as nudge letters -- written prompts encouraging individuals to review their tax affairs and make a voluntary disclosure if something is wrong. Receiving one can feel alarming, but it is not the same as being formally investigated. Responding correctly, however, is essential. This guide explains what nudge letters are, what HMRC typically knows when it sends one and what steps to take.

What Is a Nudge Letter?

A nudge letter (formally called a compliance check letter or opportunity letter) is a notice from HMRC suggesting that your tax return may be incomplete or that you may have income or gains that have not been declared. It is not a statutory information notice and carries no immediate legal force -- but ignoring it is a serious mistake.

HMRC sends these letters in campaigns targeting specific categories of taxpayer. Recent campaigns have covered:

• Landlords with undeclared rental income
• Online marketplace sellers (eBay, Etsy, Airbnb)
• Cryptoasset holders
• Taxpayers with overseas income or assets
• Individuals with large pension withdrawals
• High earners whose PAYE records suggest income over GBP 100,000 but who have not filed a Self Assessment return

The letters are generated by HMRC's Connect system, which analyses data from banks, Land Registry, digital platforms, foreign tax authorities and other sources to identify mismatches between what taxpayers report and what third parties report.

Types of Letter

HMRC nudge letters come in broadly two forms:

Opportunity letters invite you to make a voluntary disclosure. They typically describe the area of concern (e.g., "We have information suggesting you may have received rental income") and direct you to HMRC's online disclosure service or a specific telephone line.

Check of records letters ask you to review your tax return and confirm it is correct, or to amend it if not. These are often sent after a specific event such as the sale of a property, a large pension withdrawal or a foreign income payment that HMRC has matched to your records.

Neither type means HMRC has opened a formal investigation. An investigation under Code of Practice 9 (COP9) or COP8 is a formal and far more serious step that carries explicit statutory powers.

What HMRC Knows

HMRC's data-gathering capabilities are more extensive than most people realise. Through the Connect system and data-sharing agreements, HMRC has access to:

• Property register data from Land Registry, cross-referenced with rental property databases
• Bank interest reported by financial institutions
• Digital platform data under DAC7 (Vinted, eBay, Etsy, Airbnb, and similar sites must report seller earnings)
• Cryptoasset exchange data from UK-based platforms
• Foreign income data from over 100 countries under the Common Reporting Standard (CRS)
• PAYE and pension payment records
• Social media and property listing sites (used to identify undeclared holiday lets)

When HMRC sends a nudge letter, it typically has specific data pointing to a likely discrepancy. The letter is not random.

How to Respond

Do not ignore the letter. A failure to respond to a nudge letter, followed by a subsequent formal investigation, will attract higher penalties for deliberate non-disclosure than a voluntary disclosure would have done.

Review your tax affairs carefully. Obtain records of the income or gains in question. If the letter concerns rental income, gather all rent received, allowable expenses and mortgage statements for the relevant years.

Take professional advice if the amounts are significant. A tax adviser can help you establish what, if anything, is owed, review the limitation periods that apply (usually four years for innocent error, six years for careless and 20 years for deliberate non-disclosure) and ensure any disclosure is structured to minimise penalties.

Use HMRC's disclosure facilities where appropriate. HMRC operates various specialist disclosure facilities including the Let Property Campaign (for landlords), the Worldwide Disclosure Facility (for overseas income) and the standard digital disclosure service. Making a voluntary disclosure through the correct channel typically reduces penalties significantly compared to waiting for HMRC to open a formal enquiry.

Penalties for Undeclared Income

The penalty regime depends on the nature of the error:

• Innocent mistake: 0% to 30% of tax owed (may be suspended or waived)
• Careless error: up to 30% (unprompted disclosure) or up to 45% (prompted disclosure)
• Deliberate error: 35% to 70% (unprompted) or 70% to 105% (prompted)
• Deliberate with concealment: 50% to 100% (unprompted) or 100% to 200% (prompted)

A voluntary unprompted disclosure before HMRC makes contact attracts the lowest penalties. A disclosure made after receiving a nudge letter is technically a prompted disclosure, but still considerably better than waiting for a formal investigation.

Time Limits

HMRC cannot go back indefinitely. For most taxpayers:

• Simple errors: four-year time limit
• Careless errors: six-year time limit
• Deliberate errors: 20-year time limit
• Offshore income: extended time limits apply under separate rules

If you have undeclared income, the number of years you need to address depends on the nature of the error and where the income arose.

Practical Steps

If you receive a nudge letter:

1. Do not panic. It is not a formal investigation.
2. Read it carefully and identify the specific concern.
3. Gather all relevant records.
4. Take advice from a qualified tax adviser if amounts are material.
5. Respond within the suggested timeframe -- usually 30 to 60 days.
6. Make a disclosure through the correct HMRC facility if income is undeclared.

Use the CalcHub income tax calculator to estimate how much tax may be owed on undeclared income before you contact HMRC: https://calchub.uk/calculators/income-tax