Current Developments in Current Developments in UK Tax Compliance UK Tax Compliance

ResearchResearch

John Hasseldine, Presentation at Centre John Hasseldine, Presentation at Centre of Tax System Integrity Conference, ANUof Tax System Integrity Conference, ANU

December 2000December 2000

Overview of TalkOverview of Talk

Context of Tax Research in U.K.Context of Tax Research in U.K.

- culture of government- culture of government Role of Inland RevenueRole of Inland Revenue

- policy, structure, external links - policy, structure, external links Current Tax Compliance ResearchCurrent Tax Compliance Research

- individual developments explored- individual developments explored Future ChallengesFuture Challenges

(1) CONTEXT OF TAX (1) CONTEXT OF TAX RESEARCH IN THE U.K.RESEARCH IN THE U.K.

Reviews on Reviews on Modernising Modernising GovernmentGovernment Lord Grabiner’s Report into the Lord Grabiner’s Report into the

Informal Economy (March 2000)Informal Economy (March 2000) Integration of Benefits into Tax Integration of Benefits into Tax

SystemSystem On/Off Proposals of IR / C & E mergerOn/Off Proposals of IR / C & E merger Lobbying on Costs of Compliance Lobbying on Costs of Compliance

and Burden of Taxes (e.g. CBI)and Burden of Taxes (e.g. CBI)

Reviews on Reviews on ModernisingModernising GovernmentGovernment

““Adding it Up” and “Modernising Adding it Up” and “Modernising the Policy Making Process” the Policy Making Process”

Fundamental change in culture will Fundamental change in culture will require: -require: -

Leadership; Openness; Better Leadership; Openness; Better planning; Spreading best practice; planning; Spreading best practice; Recruit/retain best peopleRecruit/retain best people

Objective is: Evidence Based PolicyObjective is: Evidence Based Policy

Lord Grabiner’s ReportLord Grabiner’s Report

Focuses on the Informal EconomyFocuses on the Informal Economy Asked to investigate, ways to promote Asked to investigate, ways to promote

legitimate activity, and for action planlegitimate activity, and for action plan Incentives to join ….Incentives to join …. Prevention and DetectionPrevention and Detection Punishment - new offencePunishment - new offence Publicity - use of advertising as tool to Publicity - use of advertising as tool to

change public attitudeschange public attitudes

(2) ROLE OF INLAND (2) ROLE OF INLAND REVENUEREVENUE

Evidence Based PolicyEvidence Based Policy Structure: Research Board Structure: Research Board Research ProgrammeResearch Programme External Links e.g. TMRExternal Links e.g. TMR Encouraging compliance and Encouraging compliance and

identifying non-compliance still at identifying non-compliance still at the heart of Compliance Strategythe heart of Compliance Strategy

Evidence based PolicyEvidence based Policy

Review of Analytical Services: More Review of Analytical Services: More analysts, Central Research Unit, Focus analysts, Central Research Unit, Focus on LBO complianceon LBO compliance

Evidence based policy requires: Evidence based policy requires: cost/yield; distributional impact, cost/yield; distributional impact, economic impact, behaviour effects, economic impact, behaviour effects, compliance costs assessmentscompliance costs assessments

In past, no post implementation reviewIn past, no post implementation review

Structure: Research BoardStructure: Research Board

Analytical Services paper led to RB -Analytical Services paper led to RB -which will provide research for entire which will provide research for entire Department (internal and external)Department (internal and external)

Four member RB - with criteria for Four member RB - with criteria for research being: Significance of research being: Significance of research (tax at risk); political research (tax at risk); political sensitivity; costs/results; and sensitivity; costs/results; and contribution to long term strategycontribution to long term strategy

Research Programme - Research Programme - 9/20009/2000

Tax Credit / Income Tax evaluation / NITax Credit / Income Tax evaluation / NI Compliance CostsCompliance Costs Business Tax / Corporate ModelsBusiness Tax / Corporate Models Capital and SavingsCapital and Savings Compliance Research - [sec. 3 of talk]Compliance Research - [sec. 3 of talk] Market Research - behaviour/viewsMarket Research - behaviour/views Strategic Planning - e.g. new tech.Strategic Planning - e.g. new tech.

External LinksExternal Links

TMR Net - Steering group from TMR Net - Steering group from University of Bath (C&E, IR, OECD):- University of Bath (C&E, IR, OECD):-

- Multidisciplinary team will focus on - Multidisciplinary team will focus on both external environmental influences both external environmental influences and internal management issues;and internal management issues;

- Currently identifying research priorities.- Currently identifying research priorities. Tax Research NetworkTax Research Network

(3) CURRENT TAX (3) CURRENT TAX COMPLIANCE RESEARCHCOMPLIANCE RESEARCH Income Tax SA Enquiries (Audits) Income Tax SA Enquiries (Audits) VAT - Working towards best VAT - Working towards best

practicepractice VAT Compliance - Exeter reportVAT Compliance - Exeter report Leverage ExperimentsLeverage Experiments Joint Compliance Costs ProgrammeJoint Compliance Costs Programme ECU AdvertisingECU Advertising

Collaborative study between IR and Collaborative study between IR and CIOT - Report November 2000CIOT - Report November 2000

Innovative Survey of 1786 Revenue Innovative Survey of 1786 Revenue Officers (intranet) and 332 AgentsOfficers (intranet) and 332 Agents

Reviewed process of tax enquiries Reviewed process of tax enquiries (audits) - legn., procedural, OCC/WT(audits) - legn., procedural, OCC/WT

Study shows disagreement on Study shows disagreement on “conduct” and “process” of tax “conduct” and “process” of tax audits. May contribute to adversarial audits. May contribute to adversarial approach.approach.

Income Tax SA EnquiriesIncome Tax SA Enquiries

VAT: Best PracticeVAT: Best Practice

Collaborative Study between C&E and Collaborative Study between C&E and CIOT (Ann Hansford)CIOT (Ann Hansford)

Differences exist between perceived Differences exist between perceived quality of advice and knowledge base of quality of advice and knowledge base of each group (Agents and Tax Officers)each group (Agents and Tax Officers)

Poor knowledge on either side results in Poor knowledge on either side results in increased costsincreased costs

Attitude change re: tax admin researchAttitude change re: tax admin research

VAT ComplianceVAT Compliance

University of Exeter report to C&EUniversity of Exeter report to C&E Shows factors that help compliance are:Shows factors that help compliance are:

-- peer attitudes; disagreement with peer attitudes; disagreement with statement that evading increases statement that evading increases profits; quality of service perception; profits; quality of service perception; community oriented personalitycommunity oriented personality

Balance of publicising noncompliance, Balance of publicising noncompliance, but that most people are honestbut that most people are honest

Leverage ExperimentsLeverage Experiments

Leverage is a targeted program of Leverage is a targeted program of education and publicity with follow up education and publicity with follow up measures to improve compliancemeasures to improve compliance

Designed to achieve measurable and Designed to achieve measurable and sustained improvement in compliancesustained improvement in compliance

NC Risks: Fundamental; Technical; NC Risks: Fundamental; Technical; ProceduralProcedural

Measures will include income returned, Measures will include income returned, date of return filing, audit adjustmentdate of return filing, audit adjustment

Joint Compliance Costs Joint Compliance Costs Programme (Over 4 Years)Programme (Over 4 Years)

Aim: to measure costs of complianceAim: to measure costs of compliance To: allow estimation of aggregate costs, To: allow estimation of aggregate costs,

allow comparisons, look at causes, keep allow comparisons, look at causes, keep burden to minimumburden to minimum

All main taxes - currently two studies All main taxes - currently two studies on Corporation Tax and VAT have been on Corporation Tax and VAT have been awarded after being put out to tender.awarded after being put out to tender.

Results expected - from May 2001Results expected - from May 2001

Results of AdvertisingResults of Advertising

Publicity campaigns: fairly recent eg SAPublicity campaigns: fairly recent eg SA ECU: “Tax and Benefit Confidential” stems ECU: “Tax and Benefit Confidential” stems

from L. Grabiner’s reportfrom L. Grabiner’s report Aims were to create awareness, Aims were to create awareness,

encourage calls, drop #’s inf. economyencourage calls, drop #’s inf. economy Tricky to target & low spend meant most Tricky to target & low spend meant most

calls didn’t directly result in more legit. calls didn’t directly result in more legit. taxpayerstaxpayers

Working with other agenciesWorking with other agencies

(4) FUTURE CHALLENGES(4) FUTURE CHALLENGES

Corporate Tax - under-researchedCorporate Tax - under-researched Incentives - sound good, much Incentives - sound good, much

harder to implementharder to implement Role of Tax Practitioners - complex Role of Tax Practitioners - complex

role as both enforcers and role as both enforcers and exploiters; Under-researched in U.K.exploiters; Under-researched in U.K.

Attitude / Behaviour LinksAttitude / Behaviour Links

Role of Tax PractitionersRole of Tax Practitioners

Some prior work in UKSome prior work in UK Decision to Engage PreparerDecision to Engage Preparer Compliance level of returns filed with Compliance level of returns filed with

assistance of preparersassistance of preparers Factors that contribute to Factors that contribute to

Aggressiveness of Tax PractitionersAggressiveness of Tax Practitioners

- are they enforcers / exploiters of - are they enforcers / exploiters of system?system?

Attitude / Behaviour LinksAttitude / Behaviour Links

Focus on customer management Focus on customer management initiatives e.g. Customer Service initiatives e.g. Customer Service Performance IndicatorsPerformance Indicators

Some work completed in NZ, but little Some work completed in NZ, but little in UK to link attitudes toward tax in UK to link attitudes toward tax agency, and fairness with behavioural agency, and fairness with behavioural compliance.compliance.

New Marketing Director likely to take New Marketing Director likely to take close interest in this areaclose interest in this area

TO CONCLUDETO CONCLUDE

Ideal situation is to assist people to Ideal situation is to assist people to comply “in advance”comply “in advance”

Will require some cultural changes as Will require some cultural changes as new “compliance models” are adoptednew “compliance models” are adopted

Time is ripe for international Time is ripe for international collaboration between researchers and collaboration between researchers and tax agencies.tax agencies.

Thank you.Thank you.