HMRC Resorting to Using Psychologists to Get People to Pay

HMRC has used a team of psychologists and “behavioural economists” to make people feel guilty if they don’t pay their taxes on time, Danny Alexander revealed at the Liberal Democrat party conference.

The Chief Secretary to the Treasury announced that HMRC had used psychologists to analyse and change the wording of hundreds of thousands of letters sent out to the public in the hope that people will promptly pay their taxes.

The “large scale” trials were conducted to “pinpoint the exact words and concepts” which would encourage people to pay their taxes quickly. It found that by highlighting the degree to which others are paying their taxes, known as the social norm, people are more likely to pay up.

In many cases, local comparisons were used to encourage people to pay up. The trials found that replacing the sentence “Nine out of 10 people in the UK pay their tax on time” with “The great majority of people in [the taxpayer’s local area] pay their tax on time” increased the proportion of people who paid their income tax before the deadline.

Some of the changes are more subtle. HMRC tells people in debt that “most people with a debt like yours have paid it by now”.

People with debts of £30,00 were found to be 20 per cent more likely to respond to letters that mentioned public services than those that did not.

Letters will say that the Revenue can track you without your knowledge and quote specific data for non-payers in your industry. For example, HMRC targeted doctors by going to health insurance providers to collect data about consultancy fees paid to doctors that weren’t subject to tax unless the doctor put it on their return.

In another instance, people were informed that they were making an “active choice” if they failed to respond to a tax repayment reminder. In one month after the altered letters were issued, repayments had doubled.

Mr Alexander said: “We are using psychologists and behavioural economists in HMRC to get the money quickly. Tax dodgers beware – we know where you live, we know how much you owe, and now we know how you think. Your behaviour is unacceptable, and we are coming for our money.”

Mistakes over tax demands cost HM Revenue & Customs nearly £4m in refunds and write-offs last year. This, along with breaking up the IT system that helps the Revenue collect £500billion of income tax every year, makes you wonder if they do know where we live, what we owe and how we think!

Apparently the change in wording has so far led to an estimated £210 million worth of additional tax revenues each year. Although previously, chancellor George Osborne has been accused of lying about the figures of how much tax has been collected.

The same scare tactic, developed by the government’s “behavioural analysis team”, is also being used to target potential tax evaders who are being sent letters asking them to clarify their tax affairs.

Andrew Watt, a partner at Watt Bushfield Tax Investigations, said some of the most “nudged” Britons were those who held offshore bank accounts.

He said nudge techniques were designed to persuade, or even frighten, people into changing their behaviour. He said: “HMRC would deny they use tricks.”

5,000 “nudge” letters were sent to people with Swiss accounts from HMRC earlier this year, urging them to pay any outstanding tax. Those who did not reply would face a full tax inquiry.

Mr Alexander told activists work would continue to be done on tackling tax avoidance, scrapping so-called “hybrid mismatches” which he said would bring in hundreds of millions in revenue.

HMRC remains tight-lipped about the exact psychological tricks used by the Behavioural Insights team, saying that too much information would compromise the plan’s effectiveness.