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

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Evaluation of an intervention to increase online filing of individuals’ tax returnsPeter LumbSeptember 2009

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

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

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.

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

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)

Short tax return filers (2005/06) – filing for 2006/07

Control group Pilot group

Full return Short return Internet Very late orno filing

Full return filers (2005/06) – filing for 2006/07

Control group Pilot group

Full return Short return Internet Very late orno filing

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

Adoption of online filing: previous year’s return type

Control Pilot

Short return Full return Short return Full return

Adoption of online filing: male/female, control/pilot splits

Control Pilot

Male Female Male Female

Adoption of online filing: employee and control/pilot

Control Pilot

Employee not Employee Employee not Employee

Adoption of online filing: employee (directors only)

Control Pilot

Director Not director Director Not director

Adoption of online filing: self employed (sole trade)

Control Pilot

Sole trader Not trader Sole trader Not trader

Adoption of online filing: land and property income

Control Pilot

Landlord Not Landlord Landlord Not Landlord

Adoption of online filing: free software applicable

Control Pilot

No Yes No Yes

Adoption of online filing: Financial Strategy Segments

A - Suc

B - Hap

E - Fl

K - Age

ly Dep

ssifie

Adoption of online filing: Marital Status

Control Pilot

Adoption of online filing: previous year’s filing date

30 Sept. filing deadline

31 May 06 30 Sep 06 31 Jan 07

Adoption of online filing: Age and Sex

20 40 60 80 100 20 40 60 80 100

Control Pilot

Male Female

Adoption of online filing: Income

0 10 40 100 200 350 0 10 40 100 200 350

Control Pilot

Income (000s) (square root scale)

Logistic regression: model

• Good fit achieved • (Hosmer-Lemeshow statistic p value 0.92)• Good predictive capability

Predicted probabilities by age, control and pilot groups

20 30 40 50 60 70 80 90

Full return in 2005/06

20 30 40 50 60 70 80 90

Short return in 2005/06

Model performance

1 2 3 4 5 6 7 8 9 10

Taxpayers ordered by predicted likelihood of switching to online filing (deciles)

Overall proportion switching

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

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

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

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)

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

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

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