Understanding HMRC’s Patent Box nudge letter: What to do if you receive one
If your company has taken advantage of the Patent Box regime and received a letter from HMRC urging you to provide supporting information, it can feel a little unsettling. But it needn’t be a red-flag moment. What you’ve actually received is likely a so-called “nudge” letter — one of HMRC’s proactive compliance tools. This blog unpacks exactly what HMRC says about these letters in the Patent Box context, why they’re being sent, what you should do if you receive one, potential penalties and how you can encourage a more favourable outcome with professional help.
What exactly does HMRC say about Patent Box nudge letters?
In the context of the Patent Box, HMRC has issued what are described as “one-to-many” letters (a form of nudge letter) that address companies which have elected into the Patent Box regime. The letter will typically say something along the lines of:
“We’re writing to businesses that have a Patent Box deduction on their Company Tax Returns. Some businesses don’t supply supporting information and calculations for their Patent Box figure. If you don’t supply this information, it makes it harder for us to check if your Patent Box computation is accurate …”
It then guides you to read the guidance, specifically Guidelines for Compliance 9 (GfC9), and when you next file your company tax return, to include supporting information and calculations with your Corporation Tax computations or in a Patent Box report as a PDF. The letter clarifies that this is not mandatory but that following the guidance will reduce the likelihood of a formal HMRC check.
It also reminds you that you must keep records which support your entries in your Company Tax Return — something already required under the law. For example, the internal manual of HMRC on the Patent Box regime states that the relief allows companies to apply a lower rate of corporation tax on profits attributable to qualifying patents and sets out the importance of proper documentation.
What prompted HMRC to send you a nudge letter?
The Patent Box regime is relatively complex and involves a company electing into it, identifying qualifying profits, attributing costs, and maintaining supporting records. HMRC’s internal manual states that the aim of the regime is to encourage UK companies to retain and commercialise patents.
Because of this complexity, there is a greater risk of errors or misstatements, so HMRC seems to have increased focus in this area.
That means companies which have made a claim under the Patent Box or have elected into the Patent Box regime, are within the group which are receiving the letter.
So if your company has elected into the Patent Box and claimed a deduction on your Company Tax Return, you are in scope.
What should you do if you receive a nudge letter?
Receiving the letter does not necessarily mean you’ve done anything wrong. But you should treat it seriously and use it as an opportunity to check and strengthen your position. Here’s a step-by-step guide:
1. Read the letter carefully
Check what exactly HMRC is asking for. In the case of the Patent Box nudge letter, it will ask you to read GfC9 and include supporting information and calculations when you next submit your Company Tax Return.
2. Review your Patent Box calculation and supporting records
Check that your election into the Patent Box is valid, the IP is qualifying, relevant profits have been correctly identified, appropriate costs attributed and that you have full records to support the entries. The guidance states that the level of detail you provide should be “reasonable and proportionate to the circumstances”.
3. Decide on how you will include the supporting information
You have options:
- Include the supporting information with your accompanying Corporation Tax computations; or
- Submit a separate Patent Box report in PDF format.
While it is not mandatory, doing so improves transparency and reduces HMRC’s need to ask further questions.
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4. Keep your records safe and accessible
Even when the letter is “just a nudge”, if HMRC later conducts a formal compliance check, you’ll need to provide evidence (for example, identifying income streams, patent lists, allocation of costs, elections, etc). The internal manual emphasises record-keeping.
5. Respond promptly
Though the nudge letter may not set a specific deadline in the same way a formal enquiry opening letter would, you should take action promptly. Many fail to respond to a nudge letter may increase the risk of a later formal enquiry.
6. If in doubt, seek professional advice
Because the calculations for Patent Box can be intricate and mistakes carry risks of additional tax or penalties, an experienced taccountant can review your position, help with disclosures if needed, and assist in preparing the supporting documentation.
Penalties & ways for penalty reduction
Ignoring a nudge letter could lead to more serious consequences. If HMRC later opens a formal compliance check regarding your Patent Box claim and finds errors, you may face extra tax and penalties.
Penalties
The level of penalty will depend on factors such as:
- Whether the error was careless or deliberate, or resulted from an inability to take reasonable care;
- How soon you correct the error once identified;
- How cooperative you were with HMRC during the process.
Ways for reduction:
- Voluntary disclosure: If you identify an error and disclose it voluntarily (before HMRC opens a full enquiry), you may qualify for reduced penalties.
- Prompt correction: Responding quickly, submitting all supporting information, and calculations helps.
- Co-operation with HMRC: Being open and transparent can help reduce the penalty exposure.
- Mitigating circumstances: If you have a reasonable excuse or have made steps to correct once you realise, this may help.
How can an accountant help?
Engaging a qualified accountant or specialist adviser can make a big difference:
- They can interpret the nudge letter, assess whether your claim is robust, identify any weaknesses, and provide guidance on documentation.
- They can help prepare the supporting information and calculations in a format consistent with the guidance (GfC9) and make sure you are ready for the next Company Tax Return.
- They can identify and quantify risks, for example, whether any retrospective amendments are needed or disclosures to HMRC should be made.
- They can negotiate with HMRC, if required, to manage any contact, enquiries or penalty mitigation.
- They ensure that your internal systems and record-keeping around the Patent Box election, qualifying income streams and cost allocations are well-organised and compliant.
In short, an accountant helps you transform the nudge from a potential worry into an opportunity to demonstrate strong governance and compliance. Contact us if you have received a nudge letter, and we will help you in every possible way.
Author
Mukund is a founding member of the Affinity Associates Group and has been with the practice for nearly 40 years. After completing his degree in Accounting and Finance, he went on to qualify with both ACCA and ICAEW in 1991. Over the years, he’s built deep expertise in consultancy, tax, business development, and corporate group structures. Mukund is known for helping clients make sense of complex financial challenges and turning them into opportunities for sustainable growth.
