1. Evaluation of an intervention to increase online filing of individuals’ tax returns Peter Lumb September 2009

2. SA316 online filing pilot | September 2009 | 2 Contents Self Assessment SA316 pilot Summary results Logistic regression to predict adoption of online filing Summary and Conclusions

3. SA316 online filing pilot | September 2009 | 3 Self Assessment – key facts Income Tax returns for Individuals, Partnerships and Trusts 9.6 million returns for 2007/08 HMRC has had targets for increasing electronic filing for several years For tax year 2007/08, 69% of returns filed by 31 Jan 2009 deadline were by Internet Internet filing saves administrative costs and is liked by the taxpayers who use it

4. SA316 online filing pilot | September 2009 | 4 Self Assessment: how taxpayers are asked to file Customers who previously filed on paper normally sent a paper return and guidance. Two types of paper return: Short tax return (STR) (four sides A4 paper plus guidance) Full/ main tax return: for more complex affairs/ income sources: longer with supplementary schedules for infrequent income types Customers who previously filed by online or through an advisor/ accountant sent a 2 side letter: Notice to Complete a return (SA316 form) SA316 is not a tax return itself. Advises customers how to file online or via a tax agent, or otherwise contact HMRC for a paper form.

5. SA316 online filing pilot | September 2009 | 5 SA316 pilot Research question: Does sending an SA316 – instead of a paper return and associated guidance – to unrepresented taxpayers previously filing on paper encourage online filing? Pilot group: 10,000 individuals who filed on paper for 2005/06: send SA316 notice for 2006/07 tax year – instead of paper return Control group: a further 1,000 taxpayers Selected from one office for practical reasons

6. SA316 online filing pilot | September 2009 | 6 Summary results Filing method of taxpayers in pilot and control groups for 2006/07 analysed Analysed separately for people sent a Short tax return and those sent a full/main tax return for previous year (2005/06)

7. SA316 online filing pilot | September 2009 | 7 Short tax return filers (2005/06) – filing for 2006/07

8. SA316 online filing pilot | September 2009 | 8 Full return filers (2005/06) – filing for 2006/07

9. SA316 online filing pilot | September 2009 | 9 Logistic regression: to predict switching to online filing Aim: To gain a better understanding of factors associated with adopting online filing To build a statistical predictive model that can be used to target taxpayers most likely to adopt online fling Process: Exploratory analysis Model building and results

10. SA316 online filing pilot | September 2009 | 10 Adoption of online filing: previous year’s return type

11. SA316 online filing pilot | September 2009 | 11 Adoption of online filing: male/female, control/pilot splits

12. SA316 online filing pilot | September 2009 | 12 Adoption of online filing: employee and control/pilot

13. SA316 online filing pilot | September 2009 | 13 Adoption of online filing: employee (directors only)

14. SA316 online filing pilot | September 2009 | 14 Adoption of online filing: self employed (sole trade)

15. SA316 online filing pilot | September 2009 | 15 Adoption of online filing: land and property income

16. SA316 online filing pilot | September 2009 | 16 Adoption of online filing: free software applicable

17. SA316 online filing pilot | September 2009 | 17 Adoption of online filing: Financial Strategy Segments

18. SA316 online filing pilot | September 2009 | 18 Adoption of online filing: Marital Status

19. SA316 online filing pilot | September 2009 | 19 Adoption of online filing: previous year’s filing date

20. SA316 online filing pilot | September 2009 | 20 Adoption of online filing: Age and Sex

21. SA316 online filing pilot | September 2009 | 21 Adoption of online filing: Income

22. SA316 online filing pilot | September 2009 | 22 Logistic regression: model Good fit achieved (Hosmer-Lemeshow statistic p value 0.92) Good predictive capability

23. SA316 online filing pilot | September 2009 | 23 Predicted probabilities by age, control and pilot groups

24. SA316 online filing pilot | September 2009 | 24 Model performance

25. SA316 online filing pilot | September 2009 | 25 Logistic regression: key results – on adoption of online filing – pilot group Pilot cases that could use HMRC software – 4.2 times more likely Employees in pilot group – 2.6 times more likely Both employee and HMRC software applicability – 10.9 times more likely Directors less likely to switch than other employees

26. SA316 online filing pilot | September 2009 | 26 Logistic regression: key results – on adoption of online filing – control group Pilot cases that could use HMRC software in control group – about half as likely as other control group cases Employees in control group – about half as likely Both employee and can use HMRC software – around a quarter as likely to adopt online filing as other customers in control group

27. SA316 online filing pilot | September 2009 | 27 Logistic regression: key results – on adoption of online filing – all customers (both pilot and control) Single and also divorced/separated individuals – less likely to switch Men slightly more likely than women to switch to online filing, depending on return type Some Financial Strategies Segments – less likely For each additional year of age over about 40: up to 5.5% decline in probability of filing online Increasing take-up with income

28. SA316 online filing pilot | September 2009 | 28 Summary and conclusions (1) Pilot highly effective for some types of taxpayer – some groups ten times more likely to adopt online filing Less impact for taxpayers with more complex affairs – such taxpayers more likely to take on an agent who may often file online on taxpayers behalf (irrespective of pilot/ control)

29. SA316 online filing pilot | September 2009 | 29 Summary and conclusions: future directions (2) Model could be used for future targeted exercises to encourage online filing Potential benefit of lower costs, better overall customer satisfaction and less risk of non-filing Potential to draw additional insights from application of behavioural economics insights Discussion on possible operational applications in HMRC’s work planned