HMRC’s customer segmentation
Published 5 November 2020
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This publication is available at https://www.gov.uk/government/publications/hmrc-annual-report-and-accounts-2019-to-2020/hmrcs-customer-segmentation
HMRC collects revenues, according to the laws set by Parliament, from millions of individuals and from businesses of all sizes.
To help us do this, we segment our customers into groups so we can identify their needs and risks more accurately and tailor our responses accordingly – from support to help people get their tax right, to targeted action against avoidance, evasion and criminal activity.
The way people live, work and pay their taxes continues to evolve and so the way in which we understand and segment our customers into groups also changes.
In 2019 to 2020 we improved our analysis through using more evidence-based assumptions, aligning our segmentation methodologies and revising population sizes so that estimates of receipts, yield and compliance spend figures across customer groups are always based on the best available data.
This technical paper highlights the main changes in the 2019 to 2020 estimates and the reasons behind them.
1. Customer segmentation changes
1.1 Population changes
The population figure for Individuals for 2019 to 2020 uses a different methodology to 2018 to 2019, to better align with our tax receipts coming from this segment. The 2019 to 2020 figure is a published statistic of the number of income taxpayers, from Official Statistics on numbers of taxpayers and registered traders. The 2019 to 2020 figure was used, adjusting to remove the ‘wealthy’ population. The 2018 to 2019 figure was an estimate of all individuals who interact with the broader tax system.
The population figure for midsize businesses, charities and public bodies has been rounded to reflect that this is an estimate
The increase in the 2019 to 2020 ‘wealthy’ population reflects a change in 2019 to the HMRC definition of the ‘wealthy’ population, which brings more taxpayers into scope. The previous definition was customers with:
- incomes greater than £150,000 (in the last year), and/or
- assets greater than £1 million (in the last year)
Customers are currently defined as ‘wealthy’ if they have:
- incomes greater than £200,000 (in any of the last 3 years), and/or
- assets greater than £2 million (in any of the last 3 years)
‘Small’ and ‘large’ population sizes remain consistent. The ‘small’ population size uses Business, Energy and Industrial Strategy Official Statistics, adjusted to remove midsize and large businesses. HMRC’s large business segment is defined as the largest 2,000 businesses by turnover and assets.
Table 1 - Population figures
| Population | 2018-19 | 2019-20 |
|---|---|---|
| Individuals | 45 million | 31 million |
| Wealthy | 500,000 | 700,000 |
| Small | 5.7 million | 5.7 million |
| Midsize, charities and public bodies | 207,000+ | 200,000+ |
| Large | 2,000 | 2,000 |
1.2 Compliance yield customer segment changes
The 2019 to 2020 compliance yield customer segment figures are larger compared to 2018 to 2019. This is because this year, total compliance yield from across the department has been fully segmented into the customer groups.
While previous segmentation captured the majority of our compliance yield, it did not include the additional revenue from some significant categories of HMRC’s activity, such as the impact of changes to legislation or of our debt management activity.
This is included this year as our analysis in this area continues to evolve and improve. Some variability in total compliance yield by tax regime is expected as very large cases settled in an individual year can distort overall tax regime results. It is also difficult in some cases to distinguish individuals from small businesses, which is why yield figures fluctuate in these categories.
Table 2 - Compliance yield segmentation
| Yield (£bn) | Small | Midsize, charities and public bodies | Large | Individuals | Wealthy | Criminals | Total |
|---|---|---|---|---|---|---|---|
| 2019-20 (all HMRC yield) | 7.6 | 5.0 | 15.8 | 2.8 | 2.2 | 3.6 | 36.9 |
| 2019-20 (without new categories, for comparison to 2018-19) | 6.6 | 4.5 | 13.3 | 2.1 | 2.0 | 3.1 | N/A |
| 2018-19 | 5.6 | 4.0 | 10+ | 2.4 | 1.8 | 3+ | 34.1 |
Note: figures may not sum due to rounding.
1.3 Tax receipts customer segment changes
- in 2019 to 2020 all tax receipts segmentations were revisited and refreshed based on most recent data
- the Pay As You Earn (PAYE) and National Insurance contributions (NICs) receipts from ‘individuals’ and ‘wealthy’ groups were updated with the new ‘wealthy’ population definition (which led to a higher population) and the latest data - this resulted in an increase in Wealthy PAYE and NICs receipts
-
segmentation assumptions have been reviewed, leading to a few improvements:
- a better understanding of allocation of NICs across PAYE and Self Assessment
- a full segmentation breakdown across individual as well as business customers for the ‘Corporation Tax (CT), Excise, VAT, Capital Gains Tax (CGT) and other taxes’ category - his has resulted in more receipts from this category being allocated to the ‘large’ customer segment, as well to ‘individuals’ and ‘wealthy’ groups.
Table 3 - Tax receipts segmentation
| Tax receipts (£bn) | Tax head | Small | Midsize, charities and public bodies | Large | Individuals | Wealthy | Total |
|---|---|---|---|---|---|---|---|
| 2019-20 | PAYE and NICs | 80 | 115 | 110 | 260 | 45 | 305 |
| CT, Excise, VAT, CGT and other taxes | 75 | 50 | 150 | 15 | 40 | 330 | |
| 2018-19 | PAYE and NICs | 85 | 95 | 115 | 250 | 27 | 295 |
| CT, Excise, VAT, CGT and other taxes | 115 | 50 | 135 | 300 |
1.4 Compliance spend customer segment changes
There has been a methodology improvement to the compliance spend segmentation for 2019 to 2020 based on latest data, resulting in changes to all customer segments.
The increase in ‘midsize, charities and public bodies’ spending and reduction in ‘large’ spending for 2019 to 2020 is from a change in methodology, where large public bodies and charities, previously categorised in the ‘large’ customer segment, have been reallocated into the ‘midsize, charities and public bodies’ customer group.
This allows for a consistent methodology between population estimates, yield, receipts and compliance spend.
Table 4 – compliance spend segmentation
| Spend (£m) | Small | Midsize, charities and public bodies | Large | Individuals | Wealthy |
|---|---|---|---|---|---|
| 2019-20 | 500 | 270 | 210 | 360 | 190 |
| 2018-19 | 490 | 210 | 230 | 360 | 150 |
Note: figures may not sum due to rounding.