I got a surprising letter from HMRC about unpaid tax on overseas income — what should I do?
Receiving a letter from HMRC suggesting you may have unpaid tax on overseas income can feel alarming, especially when it’s not immediately clear what they think is wrong. But these letters are increasingly common, and the most important thing is how you respond.
Paul Brown, Tax Director at IN Accountancy, explains that HMRC’s approach to checking tax returns has changed significantly in recent years. Where formal enquiries used to begin after HMRC spotted something “odd” on a return, HMRC now often starts with something much broader: what many professionals refer to as a “nudge letter.”
This article sets out what these letters are, why you might receive one, and the sensible steps to take next.
Why HMRC is writing to people more often
Historically, HMRC might review an individual’s tax return and open an enquiry if a specific entry looked unusual. Paul explains that this has evolved. HMRC now uses a different system which often begins with letters sent to large numbers of people.
These “nudge letters” typically say something like:
“We think there might be something wrong with your tax return. Would you like to tell us about it if you think that there is?”
The key change is that the letter may not be targeted in the traditional sense of a single detailed enquiry. Instead, it’s an early intervention, HMRC signalling that they have a reason to believe something may be missing, and giving you a chance to respond before matters escalate.
Why overseas income is a common trigger
Paul highlights one of the most frequent reasons these letters are sent: overseas income that may not have been included on a tax return.
This is happening more because HMRC now receives a huge amount of data from foreign tax authorities and other overseas sources. With that data, HMRC can carry out data matching, comparing what they’ve been told about someone’s overseas income against what appears on that person’s UK tax return.
Paul gives a simple illustration:
- HMRC may have information suggesting “Mr Brown” earned interest arising in Australia
- But HMRC can’t see it on his tax return
- That mismatch can prompt a letter
Importantly, even if the letter is prompted by something specific, Paul notes that HMRC doesn’t always tell you what that specific issue is.
The most important rule: don’t ignore the letter
Ignoring it can lead to HMRC returning later with follow-up action. And crucially, if HMRC gives you the chance to come forward and you don’t take it, the consequences can become more serious if HMRC later concludes tax was underpaid.
Paul explains the risk in practical terms:
- HMRC has information that suggests something may be missing
- They give you an opportunity to address it
- If you don’t cooperate and HMRC later finds underpaid tax, the outcome can be “a lot worse”—including serious financial penalties
So even if the letter feels vague or general, it should be treated as a real prompt to act.
What HMRC is really asking you to do
Because nudge letters can be broad, they often put you into one of three positions:
- You’re confident nothing needs to be disclosed
- You believe something does need to be disclosed
- You’re not sure
Paul’s advice focuses on getting clarity on what HMRC is looking for. Since the letter may not tell you exactly what triggered it, the practical challenge is understanding what information HMRC may have and why they believe something is missing.
This is why the letter should be treated seriously: it may feel random, but it isn’t sent without some reason. If you realise something has been missed off your return the best option is to tell HMRC as soon as possible. Because they have identified the omission first you can probably expect to have some sort of financial penalty, but it will be a lot less than if you ignore the letter.
Equally, it does not necessarily mean there is something wrong. It may be there is a perfectly legitimate reason why something does not appear on your return, or the information HMRC may simply be wrong or even linked to the wrong person.
When to seek professional advice
If you receive one of these letters and you’re not completely sure what it relates to, seek professional advice.
The reason is not simply to “get help,” but to avoid making the worst possible move—failing to engage while HMRC is already working with information that may point to an underpayment.
If HMRC concludes you underpaid tax and you haven’t cooperated or disclosed what needed to be disclosed, you may face serious financial penalties.
The takeaway
If you get a letter from HMRC about unpaid tax on overseas income, don’t panic—but don’t brush it off either.
- Take the letter seriously
- Don’t ignore it
- Work out what HMRC is likely asking about (even if they haven’t said explicitly)
- Get professional advice if you’re unsure, because non-cooperation can worsen outcomes if HMRC later determines tax was underpaid
These letters are part of HMRC’s modern approach: using international data and matching it to UK tax returns, then prompting taxpayers to correct issues early. Treated properly, that prompt becomes an opportunity to respond constructively—before HMRC escalates matters further.
Whilst you’re here, why not follow our LinkedIn page along with our YouTube page which contains 100’s of useful videos with tax and accounting advice (including overseas income)!
There are also hundreds of useful articles on our own website here.
Book a FREE consultation call with us here
