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HMRC increasing use of ‘nudge’ letters

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RPC, the City law firm, says that 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 taxman. It is claimed that these ‘nudge’ letters are sent directly to taxpayers involved in disputes with HMRC, using behavioural psychology to subconsciously nudge taxpayers to settle their disputes.  Normally, HMRC would send correspondence to the lawyer or accountant appointed by the taxpayer to represent them in the dispute.  

RPC says that the sending of ‘nudge’ letters directly to clients in any other area of litigation would be seen as applying undue pressure. RPC says the use of ‘nudge’ letters by HMRC, which many taxpayers find intimidating, is common-place.

Adam Craggs (RPC) said: ‘HMRC believes 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 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. If a financial services business was found to be using a similar tactic, it is likely the FCA would be knocking very firmly on that business’s door.’

However, a spokesperson for HMRC dismissed the claims: ‘We have found that those involved in tax avoidance will sometimes not have been fully informed regarding the risks inherent in these arrangements.  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.’