HMRC has been a keen advocate of behavioural insights since 2000, particularly surrounding the collection of income tax debt. One of the initial successes, which saw tax collection rates rise, involved inserting a single sentence in letters chasing payment along the lines of ‘most people pay their tax on time’.
Similar tactics are still being used today and look set to be extended with the One to Many Approach.
According to the 2015/16 Update Report from The Behavioural Insights Team, one such trial focused on people who were due to make a self-assessment payment at the end of July 2015. The aim was to prevent people from incurring tax debts and fines by prompting them before the payment deadline.
Ten days before the deadline, people were divided into three groups, with different letters issued to each group.
Group 1 – ‘New’: these letters were issued to people who were new to self-assessment but had missed their first payment due in January 2015. Letters to this group included a sentence noting the previous late payment.
Group 2 – ‘Recurring’: a second type of letter was issued to those people with a poor payment history and a sentence drawing attention to the previous late payments.
Group 3 – ‘Reformed’: the final group, who had previously paid late but made their last payment on time, received a letter including a sentence thanking them for their timely payment.
Receiving a reminder letter had the desired effect:
‘New’ people increased paying by 34%.
‘Recurring’ late payers by 59%.
‘Reformed’ payers by 22%.
Promote, prevent, respond
Behavioural insights and nudges are not restricted to just written communication, but also feature in policy and service design.
HMRC’s compliance mantra is its ‘promote, prevent, respond’ strategy to tackle non-compliance.
The objective is to:
- Promote compliance by designing it into systems and processes.
- Prevent non-compliance at or near the time of filing or payment.
- Respond to non-compliance with a range of interventions.
One to Many
A One to Many Approach is where HMRC decides to send one standard message to a particular group of taxpayers, to influence their behaviour and to ensure compliance. In other words one message to many taxpayers.
The message may be a reminder to pay a tax debt as already discussed, but equally may involve drawing attention to a frequently made mistake.
HMRC considers a number of factors before adopting an OTM Approach such as:
- Are there enough common characteristics within the taxpayer group for the OTM Approach to be effective?
- How many taxpayers will be involved?
- Are they all behaving like this for the same reason?
- What message, or change to existing communications, could influence this?
- How will these taxpayers react when they receive an OTM communication?
- What will be the operational impact on HMRC e.g. more telephone calls?
Any such OTM Approach also has to be judged alongside existing campaigns and taskforces which may be planned or ongoing.
The next consideration is what form the OTM Approach should take and the selection of a delivery channel such as letter, email, SMS or digital account message.
Over recent years, we have seen HMRC trial benchmarking within targeted trade sectors and the use of ‘effective rates of tax’ letters to those individuals earning over £150,000 a year. In both trials HMRC invited the business owner or taxpayer to review their last submitted tax return and to check their accounts or income declarations.
With the rollout of digital services we are likely to see the OTM Approach adopted in many guises but, inevitably, as HMRC learns more about people and businesses via their digital accounts, the OTM Approach is likely to become increasingly fine-tuned and personalised in its application.
No doubt HMRC will analyse net profit ratio results by business sector more extensively and begin to risk assess businesses from start up to maturity, prompting and nudging them to take particular actions at pertinent points throughout their lifetime.
Author: Guy Smith, Tax Investigations Manager