Tax Administration Research Centre

Published on: 23 April 2014

TARC investigates why people do not comply with regulations, as well as many other aspects of tax administration. Image courtesy of Shutterstock.

The cost of tax non-payment and evasion to the UK was an estimated £35billion for the 2011/12 financial year.

This is a significant loss to Her Majesty’s Revenue and Customs (HMRC) and also means additional resource has to be used in combating the problem.

The £1.9million Tax Administration Research Centre (TARC), based in the University of Exeter’s Business School, aims to help to solve this problem by improving understanding of what motivates people to pay, which people don’t pay and why, and how HMRC can improve compliance with the tax laws.

Professor Gareth Myles, the Centre Director, said: “It’s interesting to know why people don’t comply with tax regulations. They’re making a decision based upon limited information and don’t really know how likely it is they’ll be discovered. It is also unclear whether people consider tax evasion a crime so much as a gamble.”

TARC runs four research sub-themes: analysis and simulation, estimation and evaluation, economic and social experimentation and interdisciplinary qualitative analysis.

Surveys and interviews

Deputy Director Professor Lynne Oats leads the interdisciplinary qualitative analysis sub-theme, which cuts across a range of topics – psychology and sociology for example. She said: “While a lot of the work in TARC is quantitative, this strand of research is more about finding out what happens in practice through qualitative surveys and interviews.”

This sub-theme currently covers two main projects. One looks at how social norms influence whether people comply with tax regulations. Another is looking at the role of tax advisors in the UK tax system.

Professor Oats expanded, stating: “In the first project, which I’m working on with a psychologist, Dr Diana Onu, we are looking at online forums for occupational groups to see if and how participants discuss tax issues. We’ve noticed that people will go to each other for tax advice when they, for example, start up a business, which goes against the assumption they’ll seek advice from an accountant.

“The second project looks at the tax advice market for taxpayers – mainly large ones. Are large businesses going to the big four accountancy firms, law firms, or elsewhere, and what advice do they seek from these advisors? Asking these questions is helping us to profile the industry.”

Analysis and simulation

Professor Myles leads on another of the Centre’s sub-themes, analysis and simulation. His team are using agent-based modelling to understand how taxpayers – or agents – are selected for audit by HMRC.

He explained: “We set up a world of agents, look at the information they have available to them, and how they interact with each other – then use that to look at who would be appropriate for closer inspection. It’s led to some interesting results so far: we’ve shown predictive analytics – of which credit scores are an example – is very useful for predicting if people are a ‘good’ or ‘bad’ risk in terms of whether they comply with tax regulations.”

Journal

The Centre is also setting up the Journal of Tax Administration with the Chartered Institute of Taxation (CIOT).  Currently there is no central journal for tax administration papers – the new journal aims to solve this problem.

Professor Myles explained: “It came about through a chance meeting at our launch event in London. The Institute’s Chief Executive Peter Fanning introduced himself and asked if we could set up a journal! The managing editors will be Lynne Oats, Chris Heady and Miguel Fonseca – all TARC members.”

The Centre also investigates issues such as why tax evasion is more prevalent in some countries than others and the social reasons behind these differences. Members, including a group of International Research Fellows, are currently working with the Organisation for Economic Cooperation and Development (OECD) and the European Union, amongst others, on a variety of tax administration related projects.

TARC is funded by the Economic and Social Research Council (ESRC), HMRC and Her Majesty’s Treasury (HMT).

Related links

» Chartered Institute of Taxation (CIOT)
» Economic and Social Reseach Council (ESRC)
» Her Majesty's Revenue and Customs (HMRC)
» Her Majesty's Treasury (HMT)
» Organisation for Economic Cooperation and Development (OECD)

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