Understanding tax compliance

In 2015, the UK Budget announced the introduction of online digital tax accounts, which removed the need to file a tax return. The UK Government planned that by the end of 2016, five million businesses and one million individuals would have switched to the new digital accounts, and that by 2020 every individual and small business should be able to access their digital tax account.
(See also Discussion Paper 015 - 15)

Service quality and compliance

We are conducting a multi-study project using a novel experimental design which is able to tease apart different forms of non-compliance. In the first study we manipulate the extent to which different quality levels of service provision in the experiment lead to different levels of non-compliance.

From the first study, we aim to identify the potential channels through which service quality affects non-compliance. And we hypothesize that one of the most important channels may be the psychological/emotional state of the customer. In the second study, we exogenously vary subjects’ psychological states and estimate the effect of those different psychological states have on honesty over and above standard economic explanations for non-compliance.

Social norms and tax compliance

An overview of conceptual and practical issues surrounding social norms and tax compliance.

This project provides a network model of the tax avoidance decision in which taxpayers compare their own consumption with others in their social network, and their own consumption in the recent past. In this context, taxpayers may seek to avoid tax so as to improve their relative standing leading to a reinforcing dynamic whereby avoidance by one taxpayer increases other taxpayers’ decision to avoid also.

Focus is on three questions of interest to academics and practitioners in tax authorities:

• How do changes in taxpayer characteristics, the tax scheme and deterrence policies affect avoidance?
• How do marginal revenue effects, arising from performing one extra intervention, vary across taxpayers with different levels of ”centrality” in the social network?
• What is the dynamic path of avoidance behaviour following an intervention?

The role of emotions in compliance

The first part of this research aims to explore the role of moral emotions in attitudes towards tax avoidance, with particular focus on the emotions of moral anger, moral outrage, and moral disgust.

The second part of this research aims to explore the role of positive emotions in tax compliance decisions, in particular the role of anticipated relief.

Ongoing

The role of intermediaries in large busineses

There has been considerable change in the past 10 years in terms interaction between large business and HMRC. New initiatives include DOTAS, CRMs, SAOs, xIBRL, risk rating, litigation strategy, GAAR. The aim of this research project was to explore the changing nature of the relationship between intermediaries and clients, and intermediaries and HMRC in the context of large businesses.

Completed

The role of 'nudges' in compliance

The objective of any national tax administration is to collect the correct amount of tax owed by taxpayers. Doing so means minimising the degree of non-compliance by taxpayers, either due to evasion or genuine error.

To this end, in autumn 2015 the UK Government announced the introduction of online digital tax accounts. A modern tax system, based on digital technology will make it easier for businesses to get their tax right. Reducing the amount of avoidable errors will also reduce the cost, uncertainty and worry that businesses face when HMRC is forced to intervene to put things right. The logic of digitising the tax system is widely recognised and millions of businesses are already banking, paying bills, and interacting online.

The next step is to digitise routine business tasks such as record keeping; many businesses have already done so. The new digital system allows HMRC to employ an array of behavioural nudges to help taxpayer’s get things right and reduce common errors.  The research project aims to answer the following three questions:

• Do nudges improve compliance/elicit a change?
• Do taxpayers ignore the nudges? If so, why?
• How much time do taxpayers spend reviewing the nudge and making changes to their data?

Ongoing

UK micro-business determinants of tax compliance

In order to investigate different types of compliance and non-compliance in UK, 330 business owners of micro-businesses (sole traders and limited companies with less than10 employees and less than £2million turnover) took part in an anonymous online questionnaire.

Two analyses were conducted - one focused on compliance and one on non-compliance.

Completed