Final doctor's orders from HMRC

Several thousand doctors and dentists will soon be receiving letters from HM Revenue and Customs giving them a last chance to come clean about their tax affairs.

HMRC is stepping up its activity under its 'Tax Health Plan', one of several targeted campaigns against specific sectors. About 2,500 doctors and dentists will receive letters in the next few days warning them that the taxman knows their tax affairs are not up to date.

The letters warn that, if the medics do not come forward to put things right within 21 days, HMRC will either 'make a determination', which would result in the taxpayer incurring significant additional charges, or refer the case to their Criminal Investigations department with a view to prosecution.

Carrot and Stick

Gary Ashford, who represents the Chartered Institute of Taxation on HMRC's Compliance Reform Forum, said: "These are 2,500 health professionals who HMRC are not giving a clean bill of tax health.

"HMRC made clear at the launch of the Tax Health Plan in January 2010 that they would be adopting a carrot and stick approach. They have offered the carrot of a relatively low penalty rate for doctors to get their affairs in order and 1500 health professionals took it up, bringing in £10 million for the Exchequer. Now they are wielding the stick at those who have not come forward.

"People should not underestimate the amount of data that HMRC is holding. They have been talking to medical insurance companies, pharmaceutical companies and locum agencies. What we are now seeing is HMRC starting to use that information, to identify who has not notified HMRC of all their tax liabilities.

"HMRC are adopting an increasingly sophisticated approach to their campaigns. As well as threats of prosecution, some of the letters in this latest offensive show that the taxman has adopted 'nudge' theory, trying to shame doctors into acting by pointing out that the public put trust in them and that most of their colleagues manage to keep their tax affairs in order.

"The plumbers 'tax safe plan' has seen nine arrests since the disclosure opportunity ended in August. Doctors should be clear that not coming forward is a prescription for a very tough penalty, potentially even prosecution.

"Anyone who is worried that they have been underpaying tax – whether deliberately or in error, and whether they are doctors or anyone else – should get professional advice without delay. Penalties will generally be less severe for taxpayers who come forward voluntarily to put their affairs in order with HMRC."

The medical campaign involving doctors and dentists is one of a number of targeted compliance activities. Other sectors, regions and groups include plumbers, the restaurant trade, off-shore accounts, VAT defaulters, private tutors, scrap metal dealers and fast food outlets in Scotland; landlords and the construction industry in the North West and Wales; and non-filing in the South East.

The next two campaigns will be launched in early 2012 and will target e-marketplaces and electricians.

Nudge theory

The 'nudge' theory referred to by the CIOT spokesman is a new approach to compliance. It aims to adopt a 'mostly nice' approach with a hint of playing to the feeling of guilt.

For example, one variation of the letter being sent out by HMRC opens with the information that: "Nine out of 10 people surveyed by Ipsos MORI in 2011 said that they trust their doctor to tell the truth. This makes doctors the most trusted profession in the UK. In keeping with this, our records show that 97 per cent of doctors have filed all their tax returns for the last four years."

In a recent Radio 4 interview, Richard Thaler (co-inventor of 'nudge' theory) highlighted that preliminary analysis of work he was doing with HMRC on wording of tax demand letters indicated that an approach of 'mostly being nice' and pointing out 'most people pay their taxes' led to a 10 per cent higher yield than some alternate approaches.

The UK Government's eight person 'nudge unit' – technically called the Behavioural Insights Team – was set up in July 2010 and is the first of its kind in the world.