HMRC is increasingly using ‘nudge’ letters to circumvent the normal dispute resolution process and put pressure on individuals currently engaged in a dispute with the tax-man, City law firm RPC claims.
The letters are sent directly to tax payers involved in disputes with HMRC, using “behavioural psychology to subconsciously nudge tax payers to settle their disputes”. Normally, HMRC would send correspondence to the lawyer or accountant appointed by the tax payer to represent them in the dispute.
The behavioural insights team was originally set up as a central Whitehall function by the coalition government in 2010 in order to subtly alter the way people behave. HMRC has also set up its own ‘nudge’ unit to target high net worth individuals and other individuals they suspect of not paying the correct amount of tax.
RPC said that the sending of ‘nudge’ letters directly to clients in any other area of litigation would be seen as applying undue pressure. It added the use of the letter, which many taxpayers find intimidating, is commonplace.
Adam Craggs, partner and head of RPC’s tax disputes team, said HMRC believes that by placing pressure directly on taxpayers engaged in a dispute they can force them to pull out and settle.
He added: “They are sending letters about often highly complex issues to individuals who do not have technical knowledge of tax issues. Not only is this a tactic designed to pressurise taxpayers into settling their dispute, it also demonstrates just how far HMRC is prepared to go in its attempt to persuade taxpayers not to pursue their dispute.”
An HMRC spokesman said the authority has found that those involved in tax avoidance will sometimes not have been fully informed regarding the risks inherent in these arrangements.
He said: “In such circumstances, it can be productive to write directly to the taxpayer, to ensure that they are aware of all the options open to them. We never apply pressure and always suggest that a taxpayer should discuss the issues raised with their professional adviser.”