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HMRC gives litigants a nudge

21st Sep 2015
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HMRC has been sending ‘nudge’ letters directly to individuals involved in tax disputes. The letters are a sign that the department’s enthusiasm for behavioural psychology tactics is reaching into dispute resolution.

The city law firm RPC, however, labelled the letters a backhanded move designed to circumvent the judicial process. The tactic originated from the government’s behavioural insights team, the so called “nudge unit” that was established in 2010.

Drawing its inspiration from the data-driven behavioural economics popularised by ‘Freakonomics’ authors Stephen J Dubner and Steven Levitt, the initiative sought to use similar techniques to influence taxpayer behaviour.

The 11-strong nudge unit’s boss is David Halpern, an Oxbridge educated behavioural psychologist. The unit was partially in 2013 and now offers its services to other bodies, including the New South Wales government in Australia.

Halpern’s theory is that human behaviour can be influenced by many things, such as a desire to conform, shame, vanity and gentle prompting or “nudging”. RPC contends, however, that sending nudge letters in the context of a legal dispute would be seen as applying undue pressure.

The law firm said the use of nudge letters by HMRC, which many taxpayers find intimidating, is common-place.

“HMRC believe that by placing pressure directly on taxpayers engaged in a dispute they can force them to pull out and settle,” said Adam Craggs, partner and head of RPC’s tax disputes team. “They are sending letters about often highly complex issues to individuals who do not have technical knowledge of tax issues.”

In a statement to AccountingWEB, HMRC denied RPC’s accusation. “We have found that those involved in tax avoidance will sometimes not have been fully informed regarding the risks inherent in these arrangements,” the department 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.”

Craggs isn't convinced. “That’s quite a lot of nonsense,” he said. “The situation we’re talking about is one where there’s a dispute that’s heading to tribunal. To suggest that they don’t know what the consequences are is disingenuous from HMRC, to be honest.”

Under solicitor regulation authority rules, HMRC’s lawyers aren’t allowed to contact individuals directly. But there’s a loophole when it comes to nudge letters that come from a separate organisation.

“We can only politely write to them and ask them to stop,” said Craggs. “But we’ve been told in no uncertain terms that the Revenue feels these letters have a good effect.”

According to RPC some individuals have received more than one letter.

The letters tend to include the same information: they studiously mention HMRC’s 80% success rate at tribunal, allude to potential bad publicity stemming from a negative tribunal decision and remind the reader that HMRC is ready to help if the taxpayer wishes to resolve the dispute.

“It’s slightly Orwellian and a little bit sinister,” said Craggs. “It’s clear that large sums have been paid to behavioural psychologists and that they’re happy with the result.”

Have you seen any of these nudge letters? What’s your take?

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Replies (32)

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By Tim Vane
21st Sep 2015 20:00

Francois, do you not think that using phrases such as:

"sleek suited, Oxbridge educated behavioural psychologist."

and

"In a statement [...] thick with Halpern-like nuance"

in a straight report piece is a little cheeky? If those phrases had been quoting one or other of the parties then fine, but they are coming across as your own bias as if this was more of an op ed piece.

I note that you don't mention Mr Craggs' educational background or sartorial proclivities, but perhaps they were not germane.

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Francois
By Francois Badenhorst
21st Sep 2015 20:22

Look, I get your point

And I removed 'sleek suited'. But if you do look at pictures of him, he is sleek suited and he is Oxbridge educated. My intent was more to paint a picture of the guy because he is slightly shadowy. But if I failed in that task, I apologise.

I.R.T. Mr. Craggs: To be fair, he isn't the person in charge of a unit exploiting a loophole and sending questionable, slightly eerie letters to people. So in that sense, I do feel his character is less germane to the article. But again, I can understand your point.

Thank you for your reply, Tim. I do try and take it on board. 

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By thomas34
25th Sep 2015 08:54

Nudge, Nudge, Wink, Wink

FrancoisB wrote:

And I removed 'sleek suited'. But if you do look at pictures of him, he is sleek suited and he is Oxbridge educated. My intent was more to paint a picture of the guy because he is slightly shadowy. But if I failed in that task, I apologise.

I.R.T. Mr. Craggs: To be fair, he isn't the person in charge of a unit exploiting a loophole and sending questionable, slightly eerie letters to people. So in that sense, I do feel his character is less germane to the article. But again, I can understand your point.

Thank you for your reply, Tim. I do try and take it on board. 

No need to apologise Francois, just because the PC brigade got their post in first.

The only quote from HMRC infers that these letters are being sent to taxpayers who are involved in tax avoidance "arrangements" at a pre-tribunal stage. If they are being sent to taxpayers who are arguing the toss over an IR35 dispute for example, I'd agree that it's out of order. If the taxpayer is represented (and it seems inconceivable that they wouldn't be) it is down to the agent to deal with it and it wouldn't phase me to set the client's worries to rest.

There have been cases of outrageous (invariably artificial) schemes being peddled by companies who milk the taxpayer over a number of years and are gone by the time the case is won by HMRC. If the "nudge" encourages the taxpayer to question his agent's advice at a much earlier stage it may in the long run be advantageous to the taxpayer irrespective of the legality of the practice.

 

 

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By mikefleming3028
22nd Sep 2015 09:44

Recently, the behavioural insights team sold its services to the

"New South Wales government in Australia"

Given that Jennie Granger, head of compliance ,  joined HMRC in 2012 and was a senior official in the Australian tax system one wonders exactly what services it provided?

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Francois
By Francois Badenhorst
22nd Sep 2015 09:53

It seems pretty general

Will let you know if I scratch anything out, however. It seems pretty general.

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By mikefleming3028
22nd Sep 2015 10:17

behavioral insights ltd

was Incorporated on the 13th June 2013 and in its first accounts to 1 June 2015 it posted a turnover of £4,812,000 and profit before taxation of £1,780,000..thas one hell of a performance for a new company by any  standards.

The share structure is also interesting with

the Cabinet Office having A 3500 shares,

Nesta   3000 B shares

Company`s EBT 2250 C  shares

David Solomon Halpern 750 C Shares and 

Owain Lee Service 500 C shares

No dividends declared as yet but looks like it was set up  with a different classes of shares for a purpose. What that purpose is  will no doubt become clear perhaps with the publication of the 2016 accounts. Watch this space?

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By Colin_Jaap
23rd Sep 2015 19:21

Behavioural Insights Limited
Those accounts do make for interesting reading. Profit is £1.78m but in the directors report it is noted that there was a grant of £1.7m for BIS. So most of the profit is a government grant that can then be distributed to shareholders and employees via an EBT, we all know what HMRC's view on EBT's is.

I also like the comment the company is a "Social Purpose Company" which is repeated on their website. See below Guardian article relating to a4e using the term.

http://www.theguardian.com/voluntary-sector-network/2012/sep/05/social-p...

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By The Black Knight
24th Sep 2015 11:06

spin for something

Colin_Jaap wrote:
Those accounts do make for interesting reading. Profit is £1.78m but in the directors report it is noted that there was a grant of £1.7m for BIS. So most of the profit is a government grant that can then be distributed to shareholders and employees via an EBT, we all know what HMRC's view on EBT's is. I also like the comment the company is a "Social Purpose Company" which is repeated on their website. See below Guardian article relating to a4e using the term. http://www.theguardian.com/voluntary-sector-network/2012/sep/05/social-p...

 

Perhaps it just confirms the behavioral traits of those in charge. It will be about lining their own nests rather than any social purpose that's standard behavoiur too and it's all fear driven as per Freud.

Will it change NO

One corrupt regime will replace another.

Interesting information on NLP above.

We just have to be better players and copy the behaviour or seem too. ha ha

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By mikefleming3028
22nd Sep 2015 11:04

Employment related securities issues

Just looked up Mr Halpern on Wikipedia and a thought struck me, if he was offered the opportunity to acquire shares in Behavioural Insights Ltd as a result of his employment with the Cabinet Office then one would hope that someone thought of the above, just a thought! 

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Francois
By Francois Badenhorst
22nd Sep 2015 11:37

Very interesting, guys

I'll definitely be keeping an eye on it. I find it very...the word I want to use is, intriguing. 

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By David Gill
22nd Sep 2015 12:58

You are only just scraping the surface....
Great article – but you are only just scraping the surface.

The nudge letters cannot be looked at in isolation. They are part of a strategy to intimidate taxpayers and extort money from them.

Nudge letters are simply a derivative of HMRC intimidation tactics to circumvent the taxpayer’s right to resolve their dispute through the courts. The tactics are justified by “policy decisions” by un-named and unaccountable civil servants. Inspectors handling enquiries are simply bypassed and undermined.

It is no coincidence that the taxpayers are often represented by reputable advisers and amazingly those underlying tax issues never quite make it to the tribunal. HMRC’s success rate will not be 80% when they do.

In a case known to me, HMRC managed to issue 3000 APNs to contractors in a three month period but couldn’t manage to issue 2 closure notices on lead cases in the same period and the previous six months (thus delaying litigation of the underlying tax issues). By the way, that’s many of the same contractors who received a series of nudge letters undermining their trust in their professional adviser and encouraging them to settle on a flawed basis.

The problem is that HMRC believes its own publicity. I’m sure that the person who provided Accounting Web with the HMRC statement believed what they provided. You’re right to be sceptical because they simply make it up as they go along and hope that we will accept it.

Accountants would simply not get away with the spin and half-truths which emanate from HMRC.

I wonder if Behavioural Insights Ltd has received a nudge letter for their use of an EBT?

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By The Black Knight
23rd Sep 2015 12:38

I only nudged him

David Gill wrote:
Great article – but you are only just scraping the surface. The nudge letters cannot be looked at in isolation. They are part of a strategy to intimidate taxpayers and extort money from them.

I agree

"I only Nudged him your honor"

HMRC letters are often incorrect and abusive, they do not check their facts before sending them out. Bullies usually employ these tactics so it's not surprising it works from a psychological point of view. On the non serious offender at least.

How many suicides HMRC are directly responsible for is anyones guess as we only hear of the ones that take some of the town with them.

the way to deal with a bully

is 1, find a bigger Bully

    2, Smack him on the nose

    3, don't be intimidated

or

     1, Curl up in a ball and say thank you and sorry lots

     2, End it all ! they can't get you then. ha ha

 

"Taxation without represention is Tyranny"

 

 

 

 

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By Glenn Martin
22nd Sep 2015 13:25

Its a pity

they don't use their behavioural studies to get answers to more basic tasks. Such as why they cannot answer the telephone in less than 30 minutes.

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By mikefleming3028
23rd Sep 2015 09:35

How do you think

I could "nudge" The Cabinet Office into making sure that they have complied with the tax implications of allocating shares in a very profitable company to one of their senior employees. Can anyone suggest a form of words that would give them a "push" without it sounding aggressive or judgmental? I certainly would not want to hurt any ones feelings but we all have to do our bit to ensure that our fellow citizens fully comply with their moral obligations to pay the right amount of tax (and here I am para phrasing Mr Gauke who is I understand very keen on such things)?  

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By AndrewV12
23rd Sep 2015 10:43

Turnaround

HMRC have gone from pathetic to the mafia in the space of 6 years, could it be related to our 1.56 trillion debt, me thinks so, thanks bankers the rest of us are reaping the whirlwind.

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By Ian Narbeth
23rd Sep 2015 11:19

Turn the tables on them

I would send a copy of the nudge letter(s) to the HMRC's solicitors engaged in the dispute and ask if the solicitors endorse it/them and wish it/them to be included in the bundles to go before the court. If they say yes, then a complaint to the regulator for making improper threats ("You will get bad publicity if you don't settle with my client" is serious misconduct) should be made.

If (as may be expected) they say no then perhaps an application to injunct HMRC from sending out such letters and interfering with the proper administration of justice might be tried with their own solicitors' disavowal of the letter brought to the attention of the court. There may also be the offence of contempt of court by interfering with the administration of justice.

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By MMBBHH
23rd Sep 2015 11:30

None of this should be a surprise

The Cameron government has always been a fan of "nudge" and set up its own "nudge unit" back in 2010 I think.  This nudge unit was privatised and became Behavioural Insights Ltd.  This is not the first time HMRC have used nudging ("95% of taxpayers pay their tax on time") and it is not restricted to HMRC - it is across the civil service.

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By glynisbm
23rd Sep 2015 11:35

The "Nudge" unit

This is a link to the nudge unit website ; all looks lovely and pink and fluffy doesn't it?

http://www.behaviouralinsights.co.uk/

However, there is a darker side ...  Be afraid ...

Behaviour change has been around for many years. I think we are just getting to read and hear about it since many more people have access to the Internet. And, of course, the Conservative acceleration of behaviour change policies

....This agenda arguably signifies a general groundswell of political thinking which has been present within the Government since at least 2004. For instance, the Cabinet Office discussion paper, Personal Responsibility and Changing Behaviour: the state of knowledge and its implications for public policy (Halpern et al., 2004) aimed to consider how psychological and economic theories could be used to improve the efficiency of public policy and change the relationship between state and citizen to one of „personalisation‟ and „coproduction‟

....Whilst it had been posited as future grounds for a prospective Conservative Government in the UK, changing behaviour became an explicit and influential means
of governing under New Labour.

"The New Maternal State: the Gendered Politics of Governing through Behaviour Change"

www.aber.ac.uk/en/media/departmental/ige...w-maternal-state.pdf

2009 - Jobless to be offered talking therapies.

www.theguardian.com/society/2009/dec/04/...ing-cbt-unemployment

10 ways to protect yourself from NLP

ultraculture.org/blog/2014/01/16/nlp-10-...rotect-mind-control/

 

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By Ammie
23rd Sep 2015 11:42

THANKS

David Gill, as the song goes "you took the words right out of my mouth....." and saved me much typing!!

Only lord knows what new approaches HMRC are "cooking up", but I have no doubt they are.

My main issue being that if only much more resource and weight is placed on serious, premier league, offenders and not the, all be it sometimes careless, small trader.

Oh, and not forgetting sorting out their ridiculous help and support lines, 30 minutes to an hour waiting times? Are you sure? That debate is for another day.

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By kenatnam
23rd Sep 2015 12:14

Blame the cook!

This scenario reminds me of a line from the film Under Siege - the CIA saw it as a win-win because if the operation succeeded they would take the honours (and their incompetance which lead to the situation would be forgotten), but if it failed they would blame the cook (Stephen Seagal - the hero)

My point is that instead of putting their systems and house in order and collecting tax in a fair and just manner, HMRC instead chose the easy option of spending millions (??) on a harebrained and perhaps bullying scheme that if it works will take eyes off their inadequacies but if it fails can be then blamed in total for the failure!

A win-win by all accounts, and it looks like a bonus on the side for the lucky shareholders.

Yes Prime Minister at its best!

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By taxbakbristol
23rd Sep 2015 12:27

DISGUSTED

When I read  of all the nasty dirty underhand quasi illegal things that HMRC does  ,  in OUR NAME , I am deeply ashamed.

I am ashamed to be part of a country that allows these  quasai NAZI[***] tactics ...and yes that is what they are , to happen.

We fought the last war to stop this sort of BIG Brother ,  thuggery.in Government by the Government.

We have , I am afraid , been conditioned to thinking that Behavioral  Change tactics like these are acceptable to be used by an Organ of The State ....but you know they are not!

We should ALL be  deeply shamed that Government has reduced US to the level of George Orwells Pigs.

Forgive the spelling ..I am still that angry!

 

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By Hayter
23rd Sep 2015 14:52

George Orwell's Pigs
George Orwell's pigs of course were the ones in charge. The leaders of the coup d'état. The pigs ended up having supper and beer around the table with the Farmer (the establishment?) while the sheep and horses (us?) looked in with wonderment.

Never mind all the fluffy language. Government bully using it's various organs including HMRC. In the meantime, Governments assistants, like Halpern, break all the 'rules' which we are expected to observe. So we have alphabet shares (see the HMRC manual on this!) shares in consideration of employment and no doubt a nice little side line in bonuses or entrepreneurs relief on the cabinet shares.

When are we going to stop being the sheep and the cart horse? I am reminded of Solon, writer of the Athenian Constitution, who said in his poetic style -

But ye who have store of good, who are sated and overflow,
Restrain your swelling soul, and still it and keep it low:
Let the heart that is great within you be trained a lowlier way;
Ye shall not have all at your will, and we will not forever obey.

Greedy B'Stards

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By Ammie
23rd Sep 2015 12:52

ORGANISED............

crime.

Reminds me a little of how organised top tier criminals play with their victims and condition them with fear.

Or so it is portrayed in films!

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By The Black Knight
23rd Sep 2015 14:03

same behavioural problem

Ammie wrote:

crime.

Reminds me a little of how organised top tier criminals play with their victims and condition them with fear.

Or so it is portrayed in films!

 

Same Behavior as ISIS,

different belief parameters

different weapon.

still wrong

 

Comply or face large penalty! Standard Learned Human behaviour that appears in Religion, crime, marriage, the courts, and now HMRC

even God has these behavioural issues. LOL

You are not going to change behaviour by reinforcing it. They do say we can recognise our own reflection but i'm not sure

Probably also why they see criminals as like minded and do nothing as they can't see anything wrong with it.

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By Hayter
23rd Sep 2015 15:12

George Orwell's Pigs
Of course, Farmer Cameron might be quite at home sharing his dining room with Napoleon

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By Tim Vane
24th Sep 2015 00:44

Good grief Francois, you really stirred up the screaming malcontents with that little report didn't you? I should have stopped reading the thread at the point where somebody nailed Godwin's Law to the burning pigs, but it's all strangely gripping, like the Unabomber's Manifesto.

That was fun. I'm now seriously looking forward to your next piece...

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By The Black Knight
24th Sep 2015 11:14

and blind acceptance is a sign

Tim Vane wrote:

Good grief Francois, you really stirred up the screaming malcontents with that little report didn't you? I should have stopped reading the thread at the point where somebody nailed Godwin's Law to the burning pigs, but it's all strangely gripping, like the Unabomber's Manifesto.

That was fun. I'm now seriously looking forward to your next piece...

 

"and blind acceptance is a sign of .........................................................."

the sex pistols LOL

Great philosopher in my opinion.

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By Hayter
25th Sep 2015 11:26

Godwin's Law
'By the time HMRC have won the case'. . .

The only reason tax avoidance is pratised so extensively in the country is that the legislation is over complex. Governments of all parties are short lived and pursue their own policies and agendas. That doesn't make for considered tax planning but just continual tinkering with the occasional fanfare policy that has an impact but is inevitably diluted elsewhere.

HMRC go down the route of litigation because it is lazy legislation. If they want these things to disappear from the UK then simplify the tax code and legislate. Ultimately it is why the lazy txxts go to work at SW1A 1AA.

Hmmm . . . but then they would have to work and not be able to create all the troughs for the pigs to snout around in.

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By flurrymc
25th Sep 2015 12:06

Lies. damn lies and statistics

Is this not excellent news for taxpayers.  HMRC are clearly indicating that if the taxpayer has more than a 20% chance of winning a case they will not pursue it to tribunal.  I have always said that if there is less than 50% chance of winning it is probably not worth carrying on, clearly I have been too pessimistic.

Or am I missing something!

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By cfield
28th Sep 2015 10:55

Data protection anyone?

Is it not a breach of the Data Protection Act for HMRC to be giving out names, addresses and details of tax affairs to an "external" organisation, or is this got around by saying they are only swapping information with other areas of Government?

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By Ammie
28th Sep 2015 11:08

DATA PROTECTION?

Not at all. There is always an exemption.

All rules, regulation and statute do allow exceptions for exceptional circumstances and at the discretion of authorities, don't they?

Nothing is set I stone, certainly not for the few, other than of course "death and taxes".

I have been reminded of just that on more than one occasion by HMRC hierarchy.

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By Hayter
28th Sep 2015 11:40

Data Protection
I have a number of clients in receipt of nudge letters from HMRC, in connection with a tax loss scheme. None of the letters are from Behavioural Insights Ltd. They are all on HMRC letterhead.

So how are they able to claim that it's from another organisation?

The Word Weasels are out in force!

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