Drivers and deterrents of inaccurate Self Assessment repayment claims

Question 1

Executive summary

Accepted Answer

Background and approach

HM Revenue and Customs (HMRC) have seen an increase in the incidence of inaccurate Self Assessment repayment claims (that is the submission of non-compliant Self Assessment tax returns). This occurs when a Self Assessment tax return includes inaccurate information and this inaccurate information results in HMRC owing the customer money. Completing a return inaccurately could involve individuals understating their income or overstating their losses or expenses. Self Assessment tax returns, and associated repayment claims, are deemed non-compliant by HMRC when the customer has deliberately manipulated information. They are also deemed non-compliant where the customer lacks confidence or evidence that the submitted figures are correct.

Within this context, HMRC commissioned NatCen Social Research (NatCen) to conduct a qualitative research study to gain greater understanding of the Self Assessment customer journey. This was to establish HMRC customers’ motivators and deterrents to submitting a non-compliant Self Assessment tax return. The research also sought to understand the influence that fraudulent third-party Self Assessment repayment services play in customers’ decision to submit non-compliant returns. This report presents the findings from a total of 30 qualitative interviews. Fifteen of these were with customers identified by HMRC as submitting a non-compliant Self Assessment repayment claim and 15 with customers identified as submitting a compliant Self Assessment repayment claim.

Key findings

Experience of the Self Assessment submission process

Participants either found the Self Assessment submission process easy or complicated. Those who found the submission process easy were experienced in submitting returns, had straightforward returns, or felt the online portal was simple to use. Some also had access to support with their submission. Those who found the process difficult had complex claims with multiple aspects or were uncertain about what was relevant or what calculations were required. Further difficulties related to participants struggling with the terminology used by HMRC or experiencing technical issues. These factors influenced the participants’ level of confidence in the accuracy of their return and the reasons for non-compliance.

Awareness of fraudulent Self Assessment repayment services

Participants were purposely sampled based on their awareness of fraudulent Self Assessment repayment services promoting fraudulent behaviour, but no participants reported using these services. Those who had awareness of such services described seeing them in a variety of formats. All participants in the sample who were aware of this type of material, chose to ignore it as they considered the source or content untrustworthy. However, it was considered that others might engage with such services because they require support with their Self Assessment tax return and think the services are legitimate, rather than for financial gain.

Drivers to non-compliance and compliance

Those who had been identified by HMRC as having submitted a non-compliant Self Assessment tax return reported that they had not been deliberately non-compliant. The research found that compliance was complex and there was a misalignment between HMRC’s categorisation and customers’ perceptions.

Four types of non-compliance groups were identified:

no awareness of non-compliance
some awareness of non-compliance
aware of non-compliance, but this was a genuine error
aware they were not fully complying

The driver for non-compliance was not a desire to defraud the system for financial gain. This was also the case for those who were aware of non-compliance at the time of submitting their claim. Here, complacency to collate all relevant information needed to submit a fully accurate return appeared to be the key driver. Typically, non-compliance among participants tended to be unintentional and related to 1 of 3 things. The first was changes in circumstances from previous tax returns. This meant that the participants’ experience of the Self Assessment tax return process and requirements differed to what they were used to, resulting in mistakes. The second was oversight when calculating or providing specific figures. The third was a lack of a clear understanding of submission requirements despite seeking advice from the HMRC helpline. This resulted in the submission of Self Assessment tax returns in which participants had limited confidence in their accuracy.

The research found that participants overwhelmingly intended to comply. It identified a range of drivers to compliance rather than drivers to non-compliance. These were both intrinsic and extrinsic in nature. Intrinsic drivers related to viewing compliance with tax obligations as a moral duty and a belief in tax and its benefits. Extrinsic compliance drivers involved perceiving there to be a high risk of detection and wanting to avoid potential negative consequences and worry. Although the interaction of motivations with decision-making differed among participants (for example, some participants were only driven by 1 motivation while others were driven by multiple), morality was the most important driver.

HMRC Self Assessment non-compliance intervention

All Self Assessment tax returns go through an automated checking process. If a customer makes a repayment claim as part of their return that HMRC believes could be non-compliant, they will undergo a compliance intervention. This takes the form of a series of checks. Participants from the non-compliant sample had mixed recall of the intervention.

Views on the effectiveness were also mixed. Some felt that the intervention had helped ensure future compliance, either by providing an explanation for their error, or by highlighting HMRC’s ability to identify inaccuracies. Others felt that the information provided in the correction letter (which includes the identified error, the corrected figure and evidence to support the correction) was unclear or lacking in detail. It was therefore not perceived to be helpful in supporting future compliance. It was suggested that to ensure effectiveness, the letters should include further information about the reason for the intervention or the error in the return.

Customer suggestions for preventing non-compliance

Participants differentiated between unintentional and deliberate non-compliance when providing suggestions for preventing non-compliance. It was recommended that unintentional non-compliance could be prevented through HMRC making improvements to the Self Assessment tax return system and providing more guidance and support. Specifically, participants mentioned more detailed guidance in a variety of formats and improving the support available during submission.

For deliberate non-compliance, participants suggested that increased penalties and early interventions could act as a deterrent. Based on their own limited awareness about existing HMRC interventions and penalties, participants also suggested that more communication from HMRC might act as a deterrent for deliberate non-compliance. This includes communication about the implications of submitting non-compliant returns and the number of penalties given by HMRC each year.

Question 2

1.  Introduction

Accepted Answer

HM Revenue and Customs (HMRC) commissioned the National Centre for Social Research (NatCen) to undertake research of the drivers and deterrents for inaccurate Self Assessment repayment claims.

1.1 Research context

HMRC takes significant action against non-compliance. The 2020 to 2021 tax gap (the difference between the tax that should be paid and what is actually paid) was 5.3%, amounting to £35 billion. This included £5.5 billion due to evasion and £5.2 billion due to criminal attacks (HMRC, 2021). The compliance yield – the amount of revenue that would otherwise have been lost had HMRC not taken action against non-compliance, was £36.9 billion in 2019 to 2020 (HMRC, 2020).

Self Assessment customers must file a Self Assessment return at the end of the tax year which calculates the amount of tax they have underpaid or overpaid. In cases where the customers have overpaid tax, they will receive a repayment. HMRC have seen an increase in the incidence of inaccurate Self Assessment repayment claims (that is the submission of non-compliant Self Assessment tax returns). This occurs when a Self Assessment tax return includes inaccurate information and this inaccurate information results in HMRC owing the customer money. Completing a return inaccurately could involve individuals understating their income or overstating their losses or expenses. HMRC are aware that non-compliant Self Assessment repayment claims are not always driven by personal motivations. There is evidence to suggest that Organised Crime Groups or individuals are using social media and online forums to target and influence Self Assessment customers to make fraudulent repayment claims.

The potential revenue losses from inaccurate repayment claims are large, given the extent of repayment and the fact that it is growing. The total revenue figure for 2019 to 2020 (£636.7 billion) is net of £117 billion in repayments (HMRC, 2020). Repayments made by HMRC have increased in each of the 5 years up to 2019 to 2020. There is good reason to be particularly interested in non-compliant Self Assessment repayment claims: within the 4.7% tax gap, the gap for PAYE is only 1% compared to 13% for Self Assessment. HMRC expected 12.2 million customers to complete a Self Assessment tax return for the 2021 to 2022 financial year (HMRC, 2022).

This study has been commissioned to explore the drivers and deterrents to submitting inaccurate Self Assessment repayment claims. In particular, the research seeks to understand what drives customers who have previously been compliant to submit incorrect Self Assessment returns. It also seeks to understand the role of external actors who target customers and encourage the submission of non-compliant claims.

1.2 Aims and objectives

The primary aim of this research was to gain greater insight and understanding of the customer journey, to establish the motivations, influences and perceptions of risk associated with submitting a non-compliant Self Assessment tax return. It also aimed to explore whether and how external influences affected decision-making to submit non-compliant returns. The research addresses the following questions:

what prior knowledge do customers have of the Self Assessment system and what constitutes valid reason for repayment claims?
what are customers’ motivations and barriers to making a non-compliant Self Assessment repayment claim?
what drives individuals or businesses to submit a false repayment claim?
what do customers consider to be barriers?
have customers come across social media posts, blog posts or online forums promoting tax repayment claims?

The research also intended to include the following customer groups:

self Assessment customers who have interacted with groups or individuals promoting opportunities to submit fraudulent repayment claims
VAT customers who have submitted correct or incorrect repayment claims

We were not able to identify any HMRC customers who had interacted with Self Assessment fraudulent services. Furthermore, owing to challenges with recruitment, it was not possible to include the perspectives of VAT customers, further details can be found in Section 1.4.

1.3 Method

The research used a qualitative approach to answer the research questions. It consisted of 30 in-depth interviews, lasting approximately 45 minutes, by telephone or video-conferencing software. Interviews took place between March and July 2022. The sample consisted of 15 ‘non-compliant’ and 15 compliant HMRC customers. ‘Non-compliant’ customers were identified as submitting a non-compliant Self Assessment tax return and associated illegitimate repayment claim on at least 1 occasion. Compliant customers had submitted a compliant Self Assessment tax return and legitimate repayment claim.

Interviews were conducted in responsive way and took into account the Self Assessment return experiences participants were describing. This meant that some participants from the non-compliant sample were treated as compliant participants. It also meant that some participants from the compliant sample who described having had non-compliant returns at some point were probed further on these returns.

A purposive sampling approach was taken to ensure the achieved sample provided range and diversity in respect to the type of Self Assessment claim, employment status, income and age. Awareness of fraudulent promotional materials was also a selection criterion, to ensure we identified and included customers who came into contact with such material in the sample. A screening questionnaire was used to establish the above characteristics and quotas were set for each 1 to ensure range and diversity was achieved.

Further details on the methodology can be found in Appendix A.

1.4 Changes to study scope

The research initially aimed to understand the motivations and barriers to making non-compliant repayment claims for both Self Assessment and VAT customers. Upon scoping the samples and beginning recruitment, it became clear that it would not be feasible to recruit enough VAT customers who had previously made non-compliant repayment claims. This was for a variety of reasons including incorrect telephone numbers provided by those filing VAT returns and lack of willingness to take part. Therefore, the scope of the research was changed to focus only on the Self Assessment population.

1.5 Reporting conventions

The report avoids giving numerical findings, since qualitative research cannot support statistical analysis. This is because purposive sampling seeks to achieve range and diversity among sample members rather than to build a statistically representative sample. The questioning methods used are designed to explore issues in depth within individual contexts rather than to generate data that can be analysed statistically. What qualitative research does do is provide in-depth insight and explanation into the range of experiences, behaviours, views and suggestions. Wider inference can be drawn on these bases rather than on prevalence.

Verbatim quotations and case illustrations are used to illuminate the findings where appropriate. They are labelled to indicate customers’ compliance status as defined by HMRC and customers’ Self Assessment tax return type. Further information is not given to protect the anonymity of research participants. Quotes are drawn from across the sample.

Question 3

2.  Experience of Self Assessment submission process

Accepted Answer

This chapter provides an overview of compliant and non-compliant participants’ experience of the Self Assessment tax return submission process. It first outlines how and when participants submit them and their views on the ease of submission. It then explores participant confidence in the accuracy of their returns and their seeking of support (including whether it was sought, from which sources, and why). Finally, the chapter describes participants’ awareness and views of fraudulent Self Assessment repayment services.

2.1 Participants’ circumstances

Participants were either part-time or full-time self-employed, employed, or unemployed. Those who were unemployed were either not seeking further employment (as they had other streams of income from a private pension, investments, or rental income) or retired.

The length of time participants had been submitting Self Assessment tax returns ranged from once to 30+ years. Participants either submitted a return because they were self-employed, to declare untaxed income, or a range of other reasons. It was commonplace for participants to have more than 1 reason for their return. Participants who declared untaxed income had either received money from rental properties, their pension, redundancy pay, large bonuses, or were declaring benefits in-kind. Other reasons included the following:

submitting returns because participants had received money through investments, dividends or inheritance
to get reimbursed for company expenses
to declare charitable donations
because they were on a high income
because they had stopped working before the end of the tax year

The expectation that submitting a Self Assessment tax return would result in receiving a tax repayment from HMRC was mixed among participants. For 1 set of participants, repayment was not driving their decision to submit a claim. Rather, their mindset was to wait and see whether the outcome was that they owe HMRC money or vice versa. Another set of participants did expect to receive a repayment. Their understanding was that they had to inform HMRC that they had overpaid in tax and submitting a Self Assessment return would result in receiving a tax refund. This group of participants were either contributing to or withdrawing from their pension, making investments, had business expenses, or had stopped working before the end of the tax year.

2.2 Overview of the Self Assessment customer journey

2.2.1 Submission methods

How participants submitted

Participants either submitted their returns independently or with assistance. Those who submitted independently chose to because they found the process simple and straightforward or did not want to pay for assistance and would rather learn how to submit independently. Others received support from an accountant in the first instance in order to learn how to submit independently for future submissions. Those who submitted with assistance used an accountant or bookkeeper and chose to because they lacked the confidence to submit independently. A lack of confidence was driven by 1 of 3 things. These included unfamiliarity with the process, finding the process complicated because they had to pay tax in multiple countries, or uncertainty about what counted as a business expense or personal expense. Others chose to submit with assistance because it saved them time and made the process more efficient.

Submission timing

Participants’ submission timing varied and can be categorised as ranging from early submission to later submission. Early submission was considered within the months following the start of the new tax year (May, June or July). Later submission was considered close to the end or beginning of the calendar year (November, December or January). Early submission was more common than later submission. One of 2 reasons were given for submitting early. This first was because participants wanted to ensure there was enough time to make amendments and check entries before submitting. The second was that they had the paperwork needed (such as their P60) to complete the form at this time. Early submitters explained that they found it stressful leaving their return right before the deadline or wanted to avoid the risk of forgetting to submit.

Those who submitted later either explained that this was their default time to submit or that they found the process complicated, meaning they put off submitting. In other instances, participants explained having been given late notice by their employer on the need to submit a Self Assessment tax return. Others explained that this period left them just enough time to adjust their tax code if needed. One participant stated that their submission timing varied and depended on whether HMRC owed them money, or they owed HMRC. If HMRC owed them money they would submit early to receive the refund as soon as possible and if they owed HMRC money they would submit later to delay payment.

2.2.2 Ease and confidence of submission

Participants either found submission easy or complicated, which in turn effected their level of confidence in the accuracy of their Self Assessment return. There were a range of factors underpinning whether participants found the process easy or complicated and participants tended to experience more than 1 of these factors.

Participants who found submission easy

Participants who found the process easy gave the reasons outlined below.

Simplicity of the return

This was owing to participants only having to include income from a single source and not having to collate and provide information from a range of different sources. Therefore, all the submission entailed was moving information from their paperwork into the Self Assessment tax return form.

Familiarity with the return process

In these instances, participants had been doing submissions for a long time, or used to work or currently work in finance.

Perceived simplicity of the online portal

Participants cited that easy submission was facilitated by the portal’s useful functionality (for example, being able to save and go back to previous pages), clear instructions and effective navigation, or automatic calculations. Others, however, saw themselves as technically savvy, meaning their abilities to navigate the online portal contributed to why they considered submission easy.

Availability and use of support

Participants had access to support (see section 2.2.3), had others submit on their behalf, or used software to make the process easier.

Participants who found submission complicated

Participants who found the process complicated gave the explanations outlined below.

Complex claims with multiple elements

For example, participants who were submitting returns for rental property income had to provide a range of information on insurances and other costs.

Uncertainty about what is relevant

In these circumstances, participants explained that they forgot or were unsure about what figures, and from which documents, they needed to include in their submission.

Confusion over calculations on what they were owed

Here participants explained that they struggled with or were confused by the calculations for assessing how much they were owed.

They found the HMRC terminology difficult to understand

Participants noted that the forms required a degree of financial literacy, which consequently made it difficult to decipher what elements of the form applied to them.

Technical issues

Participants reported examples of receiving errors when entering certain characters that were not allowed in text boxes or facing login challenges when needing to verify their identity. Participants also struggled to find and fill in the relevant sections of the online form and expressed frustration at the fact that they were unable to leave some boxes blank.

Confidence in accuracy of Self Assessment returns

Views were mixed as to whether participants were confident that their Self Assessment tax return, and associated repayment claim, was accurate. There appeared to be no link between confidence in accuracy and whether a participant had submitted a compliant or non-compliant claim. Therefore, participants who submitted compliant claims were just as likely not to feel confident about the accuracy of their returns as participants who submitted non-compliant ones.

Participants who found the process easy because their submissions were simple, or because they were familiar with the system felt confident in the accuracy of their returns. This included participants who had submitted a non-compliant claim. These participants tended to emphasise that to their knowledge their submission was accurate and did not purposefully submit inaccurate information.

“I submitted information [that] I thought was correct; I wouldn’t do it on purpose. I gave the figures that I thought were correct, [these were] the figures in front of me at the time.” (Non-compliant submission, other return type)

Participants who lacked confidence in the accuracy of their returns were full-time employees who had been alerted by HMRC that they owed tax. This caused confusion about their calculations.

“You see your calculator at the end and it gives you an idea of what you’re owing, and I was thinking, well, actually, I’m in full-time employment and my tax is paid, and yet here I am owing tax. I couldn’t work out what it was that I should be owing it for…why do I suddenly need to pay this amount of tax? So yes, I was totally confused.” (Non-compliant submission, untaxed income return)

2.2.3 Support with submission

Aside from some non-compliant participants who found the submission process easy, participants reported to have sought some level of support with 1 or more Self Assessment tax returns. This was regardless of whether they were confident or not with the accuracy of their returns.

Reasons for support

Participants sought support with their submission for several reasons including: * uncertainty about the accuracy of the information they submitted * uncertainty about what can and cannot be claimed, for example business expenses * to resolve errors relating to changes in employer * to understand why they need to submit a return * how to account for the benefits they receive on the form, for example the Enterprise Investment Scheme allowance

Sources of support

Participants sought support or advice from a variety of sources. This included HMRC sources, finance or tax experts, colleagues or peers, or friends and family.

HMRC sources

These included the HMRC website, the help text on the form, email correspondences, or calling the HMRC helpline. For some, seeking advice from HMRC (and not another source) was due to specific problems relating to HMRC, rather than general queries about tax returns.

Finance or tax experts

This included an in-person tax advisor, time with a bookkeeper through the New Enterprise Allowance scheme , investment manager, or accountancy websites. The purpose for seeking support from experts varied. For example, accountancy websites were chosen to provide examples of solutions to problems participants were having. Bookkeepers, investment managers and tax advisors were either recommended by friends or chosen because the participant already used their services for other purposes.

Colleagues or peers

Business partners or employers were chosen to seek advice on general queries about tax returns. Participants sought support from these sources because they were in a similar line of work to the participants or also had to submit Self Assessment returns. In some cases these sources were approached for support as they were responsible for producing the necessary documentation for the participant’s return.

Friends or family

This source of support was used for ‘non-expert-related’ support. For example, to check the accuracy of the information before submitting or, for those who lacked confidence in technology, to assist in navigating the online form.

2.3 Awareness and views of fraudulent Self Assessment repayment services

2.3.1 Awareness of fraudulent Self Assessment repayment services

As set out in chapter 1, in recent years Organised Crime Groups or individuals have been targeting and influencing Self Assessment customers to make fraudulent repayment claims. Services are promoted via adverts posted online offering to organise the customer’s repayment claim in exchange for a portion of the return. Participants’ awareness of these fraudulent services varied, but all of those who were aware reported that they would not engage with it.

Those who were aware had seen them in a variety of formats. The formats included adverts or pop-ups online, text messages, emails, websites that came up at the top of results on search engines, and social media. Those who were not aware explained that they rarely use the internet, or an accountant does their returns on their behalf so had not been exposed to this material.

Some participants elaborated on the content of the materials, which tended to encourage the individuals to think HMRC owed them a tax refund. For example, participants had seen material stating that HMRC had been making errors and that the service would help uncover these errors or help them ‘optimise their tax allowance’.

2.3.2 Views of fraudulent Self Assessment repayment services

A range of reasons were given as to why participants would not engage with the fraudulent Self Assessment repayment services. Participants chose to ignore the promotions they had seen because the source or content was considered untrustworthy. The ways in which participants considered the materials to be untrustworthy came down to 3 things. These included how they perceived their personal competency, how they perceived the materials, and good practice they have in place preventing them from engaging.

How participants perceived personal competency

Participants claimed to have confidence in their ability to submit Self Assessment tax returns independently and found the process easy to do. This meant that they had never needed to use a third party to help them previously, nor would they want to pay for help in submitting their returns. This group of participants also generally perceived themselves to be suspicious of promotional material and were aware that ‘scams’ are common.

How participants perceive the material

Participants cited several signs of the untrustworthiness of the services being advertised. One of the signs was that the material did not apply to their individual circumstances. For some participants, another sign was that the material was perceived to come from an illegitimate source. Based on the material, some participants reported on the potential risk of engaging in it, for example triggering a computer virus or defrauding them by asking for a fee.

Good practice

Participants also spoke on existing practices they adopt which makes them less susceptible to engaging in promotional material. These practices included the following:

seeking help from a trusted source instead, such as an accountant, software, existing network, or HMRC
paying an agency to complete their returns
practicing due diligence when checking their emails and doing their research into whether it is potentially a scam before engaging with the service
being sceptical of promotional material, after having been warned about scams by trusted sources

A range of suggestions were given as to why others might engage. One suggestion was that some may lack the confidence to submit their returns out of fear of getting the calculations wrong, or because they are unfamiliar with the tax system. Another suggestion was that people who are busy and rush when submitting their return could be more susceptible to accepting support from illegitimate sources. It was thought that such people might also be more likely to think the material is legitimate.

Question 4

3.  Drivers to compliance and non-compliance

Accepted Answer

This chapter first focuses on participants who have been identified as submitting at least 1 non-compliant Self Assessment tax return and associated repayment claim by HMRC. It sets out the categories of non-compliance identified and explains the circumstances of these. It then discusses both compliant and non-compliant participants’ drivers for compliance and the relative importance of the different drivers. The final section of the chapter explores participants’ views on why others might submit non-compliant Self Assessment tax returns.

3.1 Non-compliance threshold

Prior to setting out the identified categories of non-compliance, it is necessary to provide an overview of HMRC’s non-compliance threshold. HMRC define a non-compliant Self Assessment tax return as a submission which includes inaccurate information. This includes returns with information that has been manipulated deliberately to be inaccurate or returns where the customer lacks confidence or evidence that submitted figures are correct. This could be, for example, by not having sufficient evidence to prove the expenses that they are claiming for in a return. A return would be deemed deliberately non-compliant even in cases where the customer does not know what the actual true figure for submission should be. This is because it is enough to demonstrate that they knew that the figure they included in the return was not accurate.

3.2 Reasons for non-compliance

3.2.1 Types of non-compliance

Compliance was complex and HMRC’s categorisation of compliant and non-compliant customers did not always align with people’s experiences. Some participants from the compliant sample described having had a non-compliant return at some point. Furthermore, some from the non-compliant sample were not aware of ever having had a non-compliant return.

The research identified 4 types of non-compliance. These were based on participants identified by HMRC as having submitted at least 1 non-compliant Self Assessment tax return, or participants from the compliant sample who discussed submitting a non-compliant return at some point. The types of non-compliance extended across a spectrum and at one end were participants from the non-compliant sample that were not aware of ever submitting a non-compliant return. At the other end were participants who were aware at the time of submission that at least 1 return would not have been fully compliant with HMRC requirements. The 4 types of non-compliance were the following:

no awareness of non-compliance
some awareness of non-compliance
aware of non-compliance, but this was a genuine error
aware they were not fully complying

It was not possible to explore reasons for non-compliance for participants in the ‘no awareness of non-compliance’ and ‘some awareness of non-compliance’ groups. This was because of the lack of knowledge or detail about their non-compliant Self Assessment tax return.

3.2.2 No awareness of non-compliance

Participants in this group had no knowledge of ever submitting a non-compliant Self Assessment tax return, despite having been identified by HMRC as having done so. Participants could not recall submitting additional documents verifying their identity or evidencing the information provided in their returns. They did not recall receiving any indication from HMRC that their Self Assessment tax return had been deemed non-compliant.

Case illustration 1: no awareness of non-compliance. Non-compliant submission, untaxed income and other return type, income of £12,571 to £50,270, aged 45 to 64

This participant was told by HMRC that he was due a substantial rebate (more than £10,000) after having been made redundant. He was also told that it might take up to 3 months to receive it as HMRC needed to make some checks due to the size of the rebate. However, the participant was not asked at any point to take any action such as provide additional documentation and eventually received his rebate in full.

3.2.3 Some awareness of non-compliance

This group included participants who were aware that their Self Assessment tax return had been queried by HMRC due to receiving communication about their return. However, they were not aware of what the issue with their return was. All participants in this group were confident that their tax return was correct at the time of submission and had no intention of submitting incorrect information.

Participants in this group had 1 of 2 experiences. The first involved those who explicitly knew that there was an error somewhere in their return as they had been notified by HMRC. However, they did not know where in the return the error was or the extent of incorrect information. The second involved those who were not aware that there would have been anything non-compliant with the return itself, though they had been asked by HMRC to submit documents to verify their identity. These checks did not cause participants to feel like the content in the return itself was being queried, or that they might be perceived by HMRC as at risk of non-compliance.

Case illustration 2: some awareness of non-compliance. Non-compliant submission, untaxed income return type, income of £50,271 to £150,000, aged 45 to 64

This participant submits tax returns as she makes additional pension contributions to reduce her tax threshold and because she owns property. As her property is overseas, she has to declare tax in 2 countries. She was made aware of errors with her tax return after receiving 2 letters from HMRC notifying her of this and listing payments from multiple years. Although she paid HMRC the tax she was told she owed, it was unclear to her from the letters where the error arose or which tax return it related to. She therefore felt unable to learn and ensure that she does not make the same mistake again. Despite previously submitting her tax returns independently, she has now employed an accountant due to the complex nature of her tax returns.

3.2.4 Aware of non-compliance, but this was a genuine error

Participants in this group were aware that they have submitted a Self Assessment tax return deemed non-compliant by HMRC, but this had been a genuine mistake and their intention was to submit a fully compliant return. These participants fell into the following 2 sub-groups:

those who were confident at the time of submitting that the information in their Self Assessment return was correct
those who were not confident that all the information in their return was correct when they submitted it

Errors were uncovered after submission, either by HMRC or by the individual themselves who contacted HMRC after realising their error. Mistakes tended to relate to one-off returns and a specific element of their return. Once participants were made aware of, and understood the reason for the error, they were happy to pay the amount required by HMRC. Reasons for non-compliance in this group involved changes in circumstances, oversight when calculating or providing figures, and lack of clear understanding of requirements.

Changes in circumstances

For participants who had been submitting Self Assessment tax returns for some time, changes in circumstances were a reason for non-compliance. This could relate either to changes in personal circumstances (such as retirement or redundancy) or changes in the law altering what allowances could be claimed. This meant that the participants’ experience of the Self Assessment tax return submission process and requirements differed to what they were used to, resulting in mistakes.

Oversight when calculating or providing figures

These participants knew what information was required of them, had this information at hand and thought at the time that their submission was accurate. However, they later discovered that they had inadvertently omitted some figures, or their calculations were inaccurate. These related to very specific calculations or figures. On revisiting the return, participants could clearly identify where the miscalculation had occurred or what information had been missed out. Participants perceived unfamiliarity with the submission systems to be the main reason they had made errors. For instance, 1 participant described how the online submission system pre-populates parts of the form with anticipated income figures. They did not realise that they had to re-enter these income figures into the online form again manually, which led to their unintentional omission.

Case illustration 3: aware – non-compliance was a genuine error. Non-compliant submission, self-employed return type, income of £50,271 to £150,000, aged 25 to 44

After submitting her return, this participant received a letter from HMRC saying that her return included incorrect information. She was confident in the figures in her return so contested it by sending HMRC evidence to support her calculations. HMRC responded to this letter with their own calculations and an explanation of where the participant had made errors. It turned out that the participant had accidentally based her calculations on the personal tax allowance from the wrong financial year. After receiving this explanation, the participant accepted the calculation and paid HMRC the tax they owed.

Lack of clear understanding of requirements

Participants’ limited confidence in the accuracy of their return was due to a lack of clear understanding of the Self Assessment tax return requirements. In these circumstances, participants had either submitted a return for the first time or submitted for the first time since a change in circumstance, such as first time receiving a pension. Although these participants lacked confidence, they still submitted their returns independently without the help of an accountant. However, they did seek advice from the HMRC helpline, though the information received did not help them fully understand the process and requirements. It is possible that rushed submissions may have played a role in these instances, as participants in this group submitted their return very close to the January 31st submission deadline.

Aware they were not fully complying

The final group included those who were aware that HMRC queried their Self Assessment tax return and were aware when submitting that they would not have been fully complying with HMRC requirements. This was because they estimated some of the figures in their tax returns without knowing whether they were fully accurate or not.

Complacency

Here the driver for non-compliance related to complacency as finding all the required paperwork was perceived to be difficult and time-consuming. This was due to the complex nature of their income streams, which included income from various shares. Complacency was not driven by an approaching submission deadline, as the Self Assessment returns were submitted soon after the end of the tax year.

Case illustration 4: aware – not fully complying. Non-compliant submission, other return type, income of £50,271 to £150,000, aged 45 to 64

This participant had estimated his share figures multiple time over the years, which had resulted in both under and overestimations. He usually tried to overestimate the figures in HMRC’s favour. For example, on 1 occasion the participant estimated that he had received £1,000 worth of dividends when the true figure later turned out to be £500. However, he had on a couple of occasions underestimated the figures and did not appear to make HMRC aware of the underestimation at the time. Following an intervention from HMRC, he no longer estimates the figures in his tax return (see Chapter 4 for more details).

3.3 Main drivers to compliance

Overall, the research found that participants were highly motivated to comply with the Self Assessment tax return process. As such they had not considered submitting an intentionally non-compliant return for personal financial gain. This was the case both for participants from the compliant sample as well as participants identified by HMRC as having submitted a non-compliant return. Because of this, this section is framed in terms of drivers to compliance, rather than as barriers to non-compliance which is how the relevant research question had been initially phrased.

A wide range of both intrinsic and extrinsic drivers for compliance were discussed. Intrinsic motivations, where action is taken because of the internal desire to do so. In this case intrinsic motivations related to viewing tax as a moral duty and the belief in tax and its benefits. Extrinsic motivations are driven by factors external to the individual, such as rewards or consequences. In this case these related to participants perceiving there to be a high risk of detection, and desire to avoid negative consequences and worry. Each of the motivations to compliance will be discussed in turn below.

3.3.1 Morality

The intrinsic driver of morality was the most prominent and important driver to compliance among participants. Complying with their tax obligations by submitting compliant Self Assessment tax returns was part of living up to their personal standards and values. Submitting non-compliant returns was seen as wrong and something that would go against their nature as an individual.

“You’re speaking to somebody who prides himself on being a compliant person. Everything from the way I fill out my tax returns to I never park in disabled spaces, I do things by the book. That’s my upbringing; that’s been my career.” (Non-compliant submission, other return type)

Participants also discussed a more general moral obligation to pay their fair share of taxes. Even when participants disagreed with how much tax they were expected to pay, they still believed it important to comply for this reason.

3.3.2 Belief in tax and its benefits

Participants who cited this intrinsic motivator as a key driver to compliance highlighted the importance of tax in funding essential national services, such as the NHS and education. The importance of tax for supporting people in need of benefits was also discussed. Participants also mentioned some specific and timely examples, such as the important role of taxes in the support that the government was able to provide during the COVID-19 pandemic. Another example included a participant having newfound appreciation for the benefit system after they had recently started receiving benefits such as Jobseekers Allowance themselves.

3.3.3 High risk of detection

The perceived high risk of detection was an extrinsic motivator driving compliance for some participants. Participants spoke about this in terms of a cost benefit calculation, where the potential risks outweighed the potential benefits, which would have involved very small monetary gains. Views were underpinned by their own personal tax return circumstances or a more generalised sense of high risk.

Personal tax return circumstances

Participants who perceived there to be a high risk of detection due to their own personal circumstances had either been submitting Self Assessment tax returns for a longer period or had a straightforward Self Assessment tax return. Those who had a long track record of correct return submissions felt a non-compliant return would diverge too much from their previous compliant returns and would likely be picked up by HMRC. Among those with straightforward returns, for example PAYE customers submitting returns due to earning over £100,000, it was perceived that HMRC would be able to easily detect non-compliance because the return only included a few figures.

Generalised sense of high risk

Here, participants discussed feeling like non-compliant customers would ‘get found out 1 way or another’. This overarching sense of high risk was driven by participants’ belief that the likelihood of detection would be high because HMRC’s powers, capabilities, and resources are extensive.

Despite these views about HMRC’s powers and abilities, general awareness of what HMRC does to identify non-compliant returns was low (see section 4.2 for further detail). This perceived high risk of detection was therefore not based on knowledge of HMRC’s risk assessment or investigation processes. Instead, it was based on what customers had heard or seen, for instance acquaintances who had been subjected to HMRC investigations.

3.3.4 Avoiding consequences and worry

A range of potential negative consequences were discussed by participants. These extended beyond specific HMRC imposed consequences to include job related consequences, financial consequences and longer-term consequences.

HMRC imposed consequences involved wanting to avoid HMRC investigations or penalties, as well as more generally not wanting to get into trouble with HMRC. Views on negative consequences were not based on participants’ knowledge or understanding of the penalties a customer might incur. They were based on participants’ assumptions of the processes and the anticipated consequences
job related consequences related to fear of participants either losing their job or license to practice. This was especially relevant to those who worked in fields related to finance, for example as accountants or as bank employees
financial consequences included the potential financial difficulties participants might experience if required to pay back not only the tax they owed HMRC, but also any HMRC imposed fines
longer-term consequences involved potential impacts on participant credit ratings or a concern that 1 investigation would lead to all future returns being investigated

There were also participants that highlighted worry would be ever-present, regardless of whether or not an actual consequence would follow. They felt that they would not be able to be at ease with knowledge of their transgression.

“I guess for me as an individual, if I then tried to play the system, if you like, and mislead it, I would be worrying about that all year. You get a note from HMRC saying that, like, oh my God.” (Compliant submission, other return type)

3.3.5 Relative importance of different drivers

Participants differed in how the motivations outlined above interacted with their decision-making and in the number of motivators that were relevant to them. Participants fell into 1 of 3 groups in this regard. The first group were driven only by 1 motivation, which was either seeing tax as a moral duty or wanting to avoid negative consequences. The second involved participants who were driven primarily by morality, but also had a secondary driver which was perceived high risk of submitting non-compliant returns. However, a lowering in the risk of detection would not result in them submitting a non-compliant Self Assessment return. The final group discussed multiple different drivers without identifying 1 overriding motivation.

3.4 Perceptions on why others are non-compliant

The aim of the research was to examine participants’ personal motivations for compliance and non-compliance as the expectation was that participants in the non-compliant sample had been deliberately non-compliant. However, as non-compliance among participants in the sample tended to be unintentional, this section explores participants’ views on why others might submit non-compliant Self Assessment tax returns. Among those who felt able to speculate on the motivators of others, 4 suggested drivers emerged.

mindset of greed and dishonesty. Participants speculated that there are likely to be individuals who are dishonest and submit non-compliant Self Assessment tax returns for financial gain. It was suggested that not much can be done to address the behaviours of people with this mindset.
financial necessity. In contrast to being driven by greed, participants also suggested that some people might submit non-compliant returns due to financial necessity because they are struggling to make ends meet.
circumstantial reasons. Participants perceived individuals who had less traceable forms of income to be more likely to submit intentionally non-compliant Self Assessment tax returns. This includes, for example, sole traders who receive cash in hand. It was speculated that less traceable income might present them with opportunities to submit non-compliant returns with a lower risk of detection.
negative attitudes toward taxation. Participants speculated that non-compliant behaviour could be driven by an opposition to taxation. This may be owing to individuals not seeing the personal benefit of paying taxes or the belief that they should not pay tax if others (such as large corporations) avoid tax. It was also suggested that it could be a form of political protest.

When speculating on why others may be non-complaint, participants differentiated between unintentionally non-compliant Self Assessment tax returns and deliberately non-compliant returns. The former was thought to be driven by complexity around the return submission processes and tax rules, and rushed submissions close to the end of January deadline.

Question 5

4.  HMRC compliance intervention

Accepted Answer

After each Self Assessment return is submitted, it goes through an automated checking process. If HMRC identify that a Self Assessment tax return, that results in a repayment of tax, may be non-compliant, the customer will undergo an intervention. This takes the form of a series of additional checks. This chapter explores recall, views and any impact the compliance intervention had on participants. Participants were determined to have experienced an intervention if they recalled receiving 1 or more of the letters outlined below:

1: Letter 1

only new customers submitting a Self Assessment tax return, which results in a repayment, for the first time receive this letter
letter 1 asks customer to call HMRC back within 30 days
if customer does not respond, HMRC assume the return has not been submitted by a real customer

2: Letter 2

after responding to letter 1, the customer is asked to verify they are who they say they are

3: Correction letter

once HMRC have verified that the Self Assessment return has been submitted by a legitimate customer they issue a correction letter, if any issues are identified with the content of the return itself
the letter details various information, including the errors identified by HMRC, the total amended sum the customer has overpaid or underpaid, and evidence to support the correction
if customer rejects the correction, a formal enquiry is opened

4.1 Recall and impact of compliance intervention

4.1.1 Recall

Non-compliant participants ranged from those with limited or no recollection of the intervention, to those with detailed recall about some, but not all components. Among participants who recalled some components, recall either related to receiving letter 2 (with no recall of any other letter), or receiving both letter 2 and a correction letter. Participants who may have received a letter 1 because they had submitted a Self Assessment return for the first time and it resulted in a repayment claim, did not recall receiving this.

4.1.2 Impact of intervention

Views were mixed as to whether the intervention had an impact on compliance and future behaviours related to Self Assessment tax return submissions.

Ensured future compliance

As previously discussed, participants were overwhelmingly motivated to be compliant. It was therefore not possible to explore the impact of the intervention on customers who had submitted a non-compliant return for reasons other than error or complacency. However, among these 2 groups, the intervention had a positive impact. Participants in this group said their intervention helped to ensure the accuracy of future returns in 1 of 2 ways. First, participants who had submitted non-compliant returns in error, due to complexity, expressed relief. They welcomed that the correction letter had confirmed their suspected error and explained it in full. In turn, this gave them the confidence to submit future returns without making similar mistakes. Second, in instances where deliberate non-compliance had taken place due to complacency, the intervention led to a change in behaviour. Receiving a letter 2 and a correction letter highlighted that HMRC are vigilant and can identify inaccuracies. As a result, they reported maintaining records that would enable them to more conveniently calculate the correct figures for future Self Assessment tax returns.

Limited or no impact

For another group of participants who had submitted non-compliant returns in error, the intervention was less effective in ensuring future compliance. Participants explained that this was because the correction they letter received lacked clarity. This included participants who were either completely unaware they had submitted a non-compliant return or had some awareness of non-compliance but were unaware of how they had made the error. These participants either could not understand the letter content or could not recall that an explanation had been included. This caused frustration and confusion as participants did not know where they had gone wrong or how to avoid repeating their error in future Self Assessment returns.

4.2 Language used in the intervention

The language and tone HMRC used in intervention communication prompted frustration among some unintentionally non-compliant participants. These participants felt that they were being unfairly treated as suspect, given they had no knowledge that they had been non-compliant until receiving the intervention. In some instances, participants reported receiving a letter 2 for the first time after many years of submitting correct Self Assessment tax returns. It was felt unnecessary for customers to have their identity scrutinised in these circumstances. Finally, although the communication was considered justified and effective where deliberate non-compliance occurred, it was felt that letter 2, in particular, had an unnecessarily harsh tone.

4.3 Following up with HMRC

Participants who noted the intervention had provided limited clarity on why they had been non-compliant were asked whether they contacted HMRC to pursue any further explanation. One of 3 approaches were taken:

HMRC were contacted to pursue further explanation which proved effective in bridging any knowledge gaps left by the correction letter
no action, as no further clarity was needed. This included participants who felt the correction letter provided sufficient clarity on its own or intended to draw on advice before submitting future returns, if needed. It also included participants who trusted HMRC’s calculations to be accurate, albeit without fully understanding the calculations or the error they had made
no action, despite wanting further clarity because it was perceived that further explanations would not aid understanding. This included participants who felt that the language deployed in the correction letter, and by HMRC in general, was inaccessible. Others who had been deemed deliberately non-compliant were concerned that seeking clarity may invite further scrutiny

Question 6

5.  Suggestions for preventing non-compliance

Accepted Answer

This chapter explores participants’ suggestions for how HMRC could deter both unintentional and deliberate non-compliance. It also details participants’ suggestions on how HMRC could prevent engagement with fraudulent services, as well as some wider improvements to communication. Suggestions were provided by both non-compliant and compliant participants. It should be noted that not all suggestions may be feasible to implement.

5.1 Preventing unintentional non-compliance

Suggestions to deter unintentional non-compliance focused on the provision of more guidance and improvements to the Self Assessment return tax system.

5.1.1 Provision of guidance

There were 2 ways participants thought guidance could be improved. First, it was felt that customers would benefit from more detailed guidance, provided both within and outside of the return submission process. In particular, it was suggested that the guidance could focus on how to declare specific types of income or expenses (such as private pensions). Second, it was suggested that guidance should be offered in a variety of formats. This could include offering both written and video preformulated guidance, as well as ‘live’ support, through both online and in-person tutorials. Live help was considered especially important as it was perceived that pre-formulated guidance could not be exhaustive. It was stressed that to be effective, live help must be accompanied by improvements to the availability of customer support (see Section 5.3).

“I really wanted to speak to someone and say, ‘Look, I’ve got this specific problem and I just need to know what page – …and what figure should I be talking about? Gross or net figures…and then where do I find those?” (Non-compliant submission, other return type)

5.1.2 Improvements to Self Assessment return system

Participants suggested 4 ways that the Self Assessment tax return system could be improved. This included simplifying the process and language used; providing additional functionality; expanding live input validation; and providing clearer explanations.

Simplifying the process and language

Here, participants explained that the processes and language assumed either some level of financial literacy or that customers could access an accountant to support with submission. It was suggested that the return interface should be made more user friendly, and the language deployed simpler, to ensure usability and accessibility for those less financially literate.

“There are a lot of people who aren’t tax professionals who need to fill in the form, and if they want people to pay tax correctly, then make it easy for them…Just because somebody earns money doesn’t mean they know about money.” (Non-compliant submission, other return type)

Improved functionality

Participants suggested that creating additional functionality could improve the usability of the interface (for example, easier forward and backward navigation). It was thought that this might further help to simplify the process of submitting a Self Assessment tax return and thereby reduce non-compliance. Another suggestion included improving specific features that were cited as causing errors. For example, as noted in Chapter 3, 1 participant was unaware they had to re-enter their figures into other sections of the online form despite the system pre-populating some parts of it. They suggested the feature could be simplified or accompanied by more specific instructions. Finally, another suggestion was greater consultation of HMRC customers, to better understand how functionality can be changed to improve the customer journey.

Live input validation

While HMRC already use live input validation within the Self Assessment tax return system to avoid errors, participants suggested that this function could be further applied throughout. Participants thought that this might reassure customers that the figures they have entered either have a high likelihood of being correct or require checking.

“You need some assurance that you’ve put the right figures in…something to say, ‘Yes, that’s correct,’…or, ‘This might be wrong’.” (Non-compliant submission, other return type)

Fully explaining errors

To provide further clarity, participants suggested that any correction letters sent to a customer should explain any errors in full. Letters should also include instructions for how to address errors, so that customers can be fully confident in submitting future returns.

“I don’t know why I’ve made a mistake…I am none the wiser, from this letter, how to make sure I do not make the same mistake again.” (Non-compliant submission, other return type)

5.2 Preventing deliberate non-compliance

The suggestions for preventing deliberate non-compliance included in this section are all speculative since they were largely provided by participants who were unintentionally non-compliant. Suggestions about how HMRC could prevent deliberate non-compliance related to 2 key themes: more communication and more severe interventions.

5.2.1 More communication

There was low awareness across the sample about what penalties HMRC have in place to address non-compliance and participants reported hearing about these via third-party sources rather than HMRC. Participants felt there should be a higher presence of communication which highlights the importance of paying the right tax. It was anticipated that this might appeal to people’s social conscience. Participants also suggested that warnings regarding the implications of non-compliance and specific details of the number of penalties given each year might deter customers. Such warnings could either be issued both within HMRC’s online Self Assessment tax return system and more widely.

Two suggestions for how warnings could be issued within the Self Assessment tax return system were put forward. First, it was suggested a warning could be included at the point customers have to declare the accuracy of their Self Assessment tax return, which is just before submission. Second, participants suggested live input validation could be further developed. This could involve not only flagging potential errors (see Section 5.1), but also including a warning about the implications of deliberately submitting a non-compliant return. It was thought that this might help deter customers motivated to be non-compliant.

5.2.2 More severe interventions

Where participants were aware of the current penalties associated with submitting a non-compliant Self Assessment tax return, they felt more severe penalties (such as larger fines) would increase the effectiveness of this measure. For example, interventions could come with the threat of increasingly large penalties should a customer repeat the offence. Participants also suggested that intervening as soon as possible was important. This was because they felt the longer customers motivated by non-compliance believe that it has gone undetected, the more motivation they may have to continue.

5.3 Preventing influence of fraudulent services

As with the previous section, all the suggestions for preventing the influence of fraudulent services were speculative, since the research did not involve anyone who had engaged with them. Suggestions covered 3 categories: simplifying the submission process, raising awareness of illegitimate support and improving customer support.

5.3.1 Simplifying submission process

Participants speculated that customers are likely taking up fraudulent services because they need support navigating the system, rather than to secure larger tax repayments. It was suggested that those most susceptible are likely to be those unfamiliar with the Self Assessment tax return system. Therefore, by improving the provision of guidance and simplifying the submission process (see section 5.1), HMRC may be able to reduce customer interaction with fraudulent services.

5.3.2 Raising awareness of illegitimate support

It was recommended that communication should highlight what customers should look out for, the dangers associated with engaging with services and specific examples of promotions established to be fraudulent. Participants proposed that HMRC could emulate the techniques used by banks to inform customers about how to protect themselves from scams. Another idea given was for HMRC to share a list of accredited tax agents or accountants that they specifically endorse.

5.3.3 Improving customer support

Participants speculated that a lack of financial literacy and difficulty in getting an immediate response from HMRC could be driving the use of fraudulent services. It was thought that customers may not be drawn to third-party support if there were improvements to the availability and accessibility of HMRC support.

Other suggestions included prioritising customer support (see section 5.4) for first time customers and less digitally literate customers, as they may be most likely to seek third-party guidance. It was also suggested that search engine optimisation could be used to ensure HMRC always appear at the top of search results, before potentially fraudulent services.

5.4 Cross-cutting improvements to communication

Finally, participants recommended improvements that relate to all forms of non-compliance, and also the influence of fraudulent services. This included making it easier for customers to get in touch with HMRC by telephone. Suggestions for this included increasing the number of customer service staff and by initially screening calls according to the questions customers have. Participants suggested that HMRC could introduce a new information campaign to prevent non-compliance, which could include customer guidance on the Self Assessment tax return system and penalties associated with non-compliance. It was recommended that this guidance could be shared with new customers who register for a unique tax reference number, or when issuing Self Assessment deadline reminder emails.

Question 7

Appendix A: Detailed methodology

Accepted Answer

Recruitment approach

An opt out approach was used to recruit participants for the research. This began with HMRC drawing 2 samples. The first sample involved customers identified as submitting compliant Self Assessment repayment claims as part of their Self Assessment return. The second sample involved customers identified as submitting at least 1 non-compliant Self Assessment repayment claim as part of a Self Assessment return.

A 2 week period followed whereby selected customers could opt out of further contact about the research. Those wishing to opt out from further contact were then removed from the sample file before it was transferred securely to NatCen. NatCen then called customers to explain the research and arrange interviews with those willing to take part. Each participant was offered the opportunity to donate £30 to 1 of 3 charities.

Sampling

The sample design and selection of participants used a purposive approach, which is widely used in qualitative research. It selects participants on the basis of key characteristics that are expected to affect the views, experiences or behaviours that are the subject of the study. The sample was composed of 2 key groups – those identified by HMRC as compliant and those identified as non-compliant. The sample was intended to achieve a mix of customers across the primary sampling criteria of awareness of fraudulent Self Assessment repayment services, and well as additional secondary criteria. Table 1 sets out the quotas and the achieved sample for the primary sampling criteria.

Table 1: Sample breakdown by primary sampling criteria

Sampling criteria	Characteristics	Compliant Quota	Compliant Achieved	Non-compliant Quota	Non-compliant Achieved
Awareness of fraudulent repayment services	Aware	Minimum 5	7	Minimum 5	5
Awareness of fraudulent repayment services	Not aware	Minimum 5	8	Minimum 5	10