Why tax relief applicants could receive a letter from HMRC?

HMRC sends nudge letters to Capital Gains Tax relief applicants

Entrepreneurs’ relief (ER) underwent various changes in 2020. One of the primary transitions it went through was that it was relabelled as BADR. However, the most important change that it went through was that its lifetime limit fell to £1 million from £10 million. This wasn’t applied to gains emerging before 11 March 2020, for instance, if a gain of £10 million had surfaced on 10 March, the claim could be applied to the full amount, however, the unused £2 million vanished the succeeding day.What led HMRC to be concerned and send out nudge letters is that it believed that individuals (and their tax advisors) might not have correctly comprehended the decreased £1 million limits needed to incorporate gains emerging before 11 March 2020. So currently it is reaching out to taxpayers that applied for BADR in 2020/21 because it is likely that they can fit into one of the two situations:

• gains exceeding £1 million have already been subject to an Entrepreneur’s Relief claim preceding the amendment, depicting the remittance for 2020/21 was 0; or
• where under £1 million gains were beforehand subject to a claim, however, the case in 2020/21 suggests the restriction has been surpassed, for example, let's assume where £500,000 had already in the past been claimed, then a £1 million claim would have been made in 2020/21.

This type of “warning” letter is usually sent out to hint at an initiation of a formal enquiry in the future. If you have received a letter from the HMRC, then you should go through your BADR/ER claim history (all the way to 2008) to understand why and give back their return if required. On the off chance that they do it themselves, you will be required to pay interest on the defaulting payment. However, apparently, no charges will be incurred by the claimant if the matter is resolved prior to the compliance check being initiated.