HMRC has published a report on the findings of a research project on drivers for taxpayer participation in voluntary disclosure opportunities. The project involved 38 interviews with taxpayers who had either disclosed voluntarily; been investigated by HMRC; or did not take any action in relation to the disclosure opportunities. The interviews covered participation in the disclosure opportunities of the Tax Health Plan, E-marketplace and Property Sales campaigns.
The research indicated that the most important reasons for non-compliance by the taxpayers was lack of knowledge of their tax obligations; their view that the tax rules were complex; their attitude towards tax as a cost; or moral justifications for their attitude. Taxpayers generally were either unaware their behavior was illegal; ambiguous about whether or not the behavior was illegal (and often using this to justify non-compliance); or deliberately evading tax.
For taxpayers to take up a voluntary disclosure offer there needed to be high awareness of the campaign and a perception that good terms and the opportunity for a fresh start were being offered by HMRC. The most likely taxpayers to disclose were those who had been unaware that their behavior was illegal. They would often feel a moral obligation to disclose and expect to be found out if they did not. These taxpayers needed to know that the disclosure campaign was relevant to their situation, that they should pay, and that the process of disclosure and payment was straightforward.
Those taxpayers who were ambiguous about the legality or otherwise of their non-disclosure would tend to need a stronger motive such as a legal threat and clear favorable terms before they would disclose. The group who were deliberately evading tax were the least likely to take advantage of the voluntary disclosure offer, although they could be persuaded by the threat of penalties and advice from third parties. These deliberate evaders had a perception that there was little chance of detection.
Conclusions for future voluntary disclosure opportunities
The research led to some conclusions for the conduct of future voluntary disclosure campaigns. HMRC must make individuals understand that sufficient support and opportunities have already been given to allow them to know their tax obligations. This would prevent some groups of taxpayers assuming they were justified in their non-compliance and could therefore reduce delays and rejections of disclosure opportunities.
Future campaigns will need to make use of a number of different channels of communication to increase awareness of each campaign. The most effective trigger to voluntary disclosure is a direct letter from HMRC.
Although the message needs to reach a broad audience it also needs to be targeted to trigger a response in each different type of target group. For those who are unaware of their tax responsibilities the campaign must support the notion that they are willing to comply once they know their obligations. The use of a personalized letter would send the message that HMRC could easily detect non-disclosure. The language of the letter could however be reassuring.
For those who are ambiguous about their obligations or are deliberately avoiding tax HMRC needs to emphasize the strong consequences if they ignore the favorable terms of the voluntary disclosure offer and continue to evade.
A particular sector may have social norms or even moral views that encourage non-compliance. The research suggests that HMRC will need to discredit this non-compliance in its campaigns. This could be done for example by emphasizing that most people in the sector comply with their tax obligations and that a minority have misunderstood their obligations.
