How the taxman uses Big Brother techniques to make you pay

“You can’t go wrong, adopting a disguise,” opines the Hon. Galahad Threepwood in P.G. Wodehouse’s Full Moon. “My old friend, Fruity Biffen, hasn’t stirred abroad without one for years. His relations with the bookies are always a bit strained, poor chap.”

In recent years, with the taxman flexing his muscles more than ever before, it sometimes seems the only way to keep your tax bills low is to be like Fruity Biffen, hiding in plain site under a false beard that looks like a bursting horsehair sofa.

But before you rush out to your local theatrical costumier, it’s worth looking at some of the techniques the taxman is now using to encourage you to pay up, in full and on time.

Not many people know this, but HMRC uses the services of something called The Behavioural Insights Team (BIT). It started life within 10 Downing Street and is now a social purpose company that is jointly owned by the government, NESTA (the innovation charity) and its employees. In its first year of trading it had a turnover of £4.8m and made £1.8m in profit.

The taxman loves BIT because it brings behavioural psychology to HMRC’s communications. The idea is that individuals respond to messages that appeal to emotions like shame or vanity, or act in response to gentle prompting or ‘nudging’.

Comparisons are profitable

To give one example, HMRC will compare you to your neighbours to nudge you into paying your taxes. One letter it trialled replaced the generic phrase “Nine out of 10 people in the UK pay their tax on time” with “The great majority of people in [your local area] pay their tax in time”. The number of people paying on time increased as a result.

The taxman is also learning how to harness fear in his cause. Because he knows that people are more likely to pay other debts before their tax bill, demands have been sent out with statements in bold type reading “Notice of enforcement – taking control of goods”, warning that unless you pay up your goods could be seized and sold at auction. In a similar vein, letters have been sent out to companies scaring them off tax avoidance, with headings that read: “Are you still thinking about trying to avoid tax?”

Pay up or else

Rather more controversially, HMRC has been accused of using behavioural insights to force people involved in legal tax disputes to settle their bills rather than go to court.

Although solicitor regulation rules say that HMRC’s lawyers aren’t allowed to contact individuals directly, there’s a loophole that allows letters to be sent from a separate organisation.

HMRC denies putting pressure on individuals, saying that people will sometimes not have been fully informed about the risks of potential tax avoidance. What is clear, however, is the letters mention the taxman’s 80% success rate at tribunal, talk about bad publicity stemming from a negative tribunal ruling and reminds taxpayers that HMRC is there to help if they want to resolve the dispute – i.e. by paying up.

If you are caught up in such a dispute, talk to us. And if you are not – nudged or not – it’s certainly a sound decision to pay your taxes on time. So if you receive a letter like the ones I’ve described, be sure to get in touch with one of our accountants. We’d rather help you out than see you spending the rest of your life wandering around disguised by a false beard!

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