Definition
A nudge letter is not an enquiry notice. It does not open a formal compliance check and it does not carry the legal force of a Section 9A or Section 12AC notice under the Taxes Management Act 1970. It is a communication from HMRC inviting the recipient to reconsider their position. HMRC's use of nudge letters in R&D is part of its "one-to-many" compliance approach, under which it sends similar letters to a large number of taxpayers simultaneously rather than engaging with each individually.
The letter typically identifies a risk category, such as companies that claimed R&D relief for the first time after using a particular agent, or companies in a sector where HMRC has seen high rates of error. It invites the company to check its claim and submit an amendment if the claim is incorrect.
How companies should respond
A nudge letter requires a considered response, not a panic amendment. The letter does not mean HMRC has found an error; it means the company has been flagged by a risk model. The right approach is to review the original claim in light of the letter's specific concern, assess whether the claim was correctly made, and then either: confirm no amendment is needed (in which case document the reasoning), or amend the return if an error is identified.
Amending a return in response to a nudge letter is treated more favourably than HMRC discovering the same error in a formal enquiry. Penalties for inaccuracies disclosed voluntarily are lower than those discovered by HMRC. However, amending when no error exists is also wrong and could be challenged later.
Nudge letters and the AIF
From 8 August 2023, the Additional Information Form became mandatory for all R&D claims. HMRC has indicated that the AIF data is used in its risk-scoring model. Companies that submitted claims before the AIF existed, or that submitted minimal detail in the AIF, are more likely to receive nudge letters because HMRC has less information to assess their claim against.
Common mistakes
The most common mistake is ignoring a nudge letter or treating it as junk mail. A nudge letter has a response window, and failing to engage at all does not close the risk: HMRC may open a formal enquiry. A second mistake is immediately amending the claim in full without checking whether the specific concern raised is actually an error. Some nudge letters flag general risk characteristics rather than specific flaws. The appropriate response depends on the specific content of the letter.
If you have received a nudge letter and are unsure how to respond, the free assessment can help you understand the options.