The use of "nudge" letters by HMRC to deal with tax disputes has come under fire from a law firm.

The use by the UK tax authority of “nudge” letters to allegedly turn up the heat on people in disputes is increasing and is unjustified, RPC, the London-based law firm, says.

RPC says the letters are sent directly to taxpayers involved in disputes with HM Revenue & Customs, 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, the firm said. 

The behavioural insights team was originally set up as a central Whitehall function by the former coalition government in 2010 to alter behaviour of taxpayers. HMRC has also set up another “nudge” unit to target high net worth individuals and other individuals they suspect of not paying the correct amount of tax.

“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 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,” Adam Craggs, partner and head of RPC’s tax disputes team, said.

“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,” he said, referring to the UK financial regulator.

“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 behavioural scientists to ‘nudge’ taxpayers to abandon their appeals,” he added.

HMRC told this publication, when asked about the matter: "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 advisor."