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HMRC's Use Of 'Nudge' Letters Under Fire

by Robert Lee, Tax-News.com, London

21 September 2015


Law firm RPC has said that the UK tax authority, HM Revenue and Customs, is increasingly using "nudge" letters to circumvent the normal dispute resolution process.

According to RPC, HMRC is sending "nudge" letters directly to taxpayers with whom it is involved in disputes. RPC said the letters use "behavioral psychology to subconsciously nudge taxpayers to settle their disputes." The firm added that normally HRMC would send correspondence to the lawyer or accountant appointed by the taxpayer to represent them in the dispute.

A Behavioural Insights Team (the so-called "nudge team") was set up by the Coalition Government in 2010. It is independent but is jointly owned by the Government, Nesta (the innovation charity), and its employees. It is dedicated to the application of behavioral sciences. HMRC has also set up its own unit to target high net worth individuals and other individuals it suspects of not paying the correct amount of tax.

Adam Craggs, Partner and Head of RPC's Tax Disputes team, commented: "HMRC believe that by placing pressure directly on taxpayers engaged in a dispute they can force them to pull out and settle. 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 pressurize 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."

"If a financial services business was found to be using a similar tactic, it is likely the Financial Conduct Authority would be knocking very firmly on that business's door. If HMRC are confident of their technical arguments, they have nothing to fear from the dispute resolution process and do not need to spend taxpayers' money on behavioral scientists to 'nudge' taxpayers to abandon their appeals."

TAGS: individuals | compliance | tax | business | tax compliance | revenue guidance | law | financial services | employees | United Kingdom | tax authority | HM Revenue and Customs (HMRC) | HM Revenue and Customs (HMRC) | services

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