Will the latest HMRC nudge initiative help plug the tax gap

21 September 2016

Mike Down

A recent article with a headline suggesting that HMRC was sending ‘threatening’ text messages warning taxpayers to pay up turned out to be rather less sinister than it first appeared.

In an effort to maximise recoveries and to no doubt plug a small part of the £34bn tax gap, HMRC is apparently carrying out a trial to find out if sending text message alerts to taxpayers will increase the chances of them paying their taxes on time. The trial is the latest initiative from the behavioural insights team, otherwise known as the ‘nudge unit’.

The test involved three different text messages. The first was a simple text alerting the taxpayer to the debt payable and advising how they could pay it. The second pointed out that HMRC would be checking to see whether the amount due was paid. The third mentioned the possibility of penalties for those who didn’t pay on time. 

The unit found that the standard message increased payment rates by 2.3 per cent compared to a group that didn’t receive any texts, while payment rates increased by seven per cent for those whose text messages referred to penalties.

The ICAEW responded by warning that text messages could be invasive particularly when they related to debt and urged caution to ensure that the tone did not appear threatening. 

While we would share such concerns if HMRC were to adopt a threatening tone, the language in the messages used in the trial appeared to be quite moderate. 

The greater challenge, perhaps, is convincing taxpayers that text messages purporting to be from HMRC are genuine. HMRC has recently updated its guidance on this – but it’s unlikely that all taxpayers will easily be able to distinguish between the real and the bogus. Another challenge for HMRC is making sure the right text message reaches the right person. 

However, if these and other issues such as assuring the privacy of confidential data, can be overcome, this could be an effective and low-cost way of encouraging taxpayers to pay up promptly. Whether it dents the tax gap remains to be seen, but small, incremental changes can sometimes make a big difference.

If you would like to discuss any of the points raised, please contact Mike Down or your usual RSM contact.