HMRC have recently started sending out “threatening” text messages (SMS) warnings taxpayers to pay their tax on time or face penalties.

The Behavioural Insights Team is part owned by the government and has been looking at ways to get payment from taxpayers in a timely manner. The unit is setup to target taxpayers and the texts are in effect pre-empted strike or warnings of possible penalties and debts that the taxpayer may accrue if they don’t pay their tax on time. As the name of the team suggests it looks at ways to increase payment of taxes and it found that using the word ‘penalty’ in the text message increased the chances of that taxpayer paying his or her tax on time.

The number of late payers making the deadline after receiving these types of text messages increased by 50 percent.

The SMS campaign signalled an increase on previous campaigns which has seen HMRC change the wording in letters to increase tax repayment rates dramatically. Sending out SMS messages is a much more cost effective way to encourage tax payments and has been seen to be arguably as effective as letters.

HMRC claims to have gained an extra £210 million from taxpayers by using the controversial ‘nudge’ tactics that predict how people will react to specific wording within an SMS text. Not surprisingly people are more encouraged to pay on time if the SMS message includes a reference to possible ‘penalties’ that the taxpayer may incur if their tax isn’t paid on time.

Of course it is every taxpayers duty to pay their tax on time and small businesses and partnerships should always complete their self assessment forms if they wish to avoid penalties to HMRC and to possibly avoid debts to HMRC.

It is true to say that HMRC rank only as an unsecured creditor, this puts them on a level with any unsecured debts such as a credit card debt or a bank loan, or indeed money owed to other people or personal debts.

However, although in practice they rank the same as other creditors in reality they act as the ‘bully in the playground’. They will push their weight around in order to get payment on time and have many advantages over other unsecured creditors in obtaining the debt owed to them. The biggest advantage they have is that they do not have to take commercial decisions with regard to recovering their debt. This means they can simply make someone bankrupt and not worry about the cost of incurring that procedure as opposed to recovering the debt. This often means that they may reject a proposal from a debtor such as an Individual Voluntary Arrangement (IVA) which is often offered as an alternative to bankruptcy. The IVA debtor may offer HMRC 50p in the £1 for the debt owed to them. So for example if HMRC are owed £50,000 the IVA proposal may offer HMRC say £25,000.00 as the debtor is insolvent. This does not necessarily mean that HMRC would accept the IVA proposal and HMRC may well be content with seeing that debtor made bankrupt even though they would receive substantially less than £25,000, which is the figure they would have received if they had accepted the IVA.

Banks and financial institutions do not have this luxury. They will look upon an IVA as a commercial decision and will frequently accept an IVA proposal from a debtor if it means they are to get a return on the money owed, even if it less than the full amount that the debtor owes them.

The moral to the final few paragraphs of this blog is simple. All unsecured creditors rank equally, it’s just that one is more equal than the others!

If you’re struggling with debt please don’t hesitate to contact a member of our dedicated team on 00845 287 0939. Alternatively please complete the online enquiry form.