HMRC's Management of Tax Debt

The House of Commons Public Accounts Committee (PAC) recent enquiry into the 'HMRC's Management of Tax Debt' reveals that the PAC is not confident that HMRC has adequate plans in place in order to solve the £6.2 million tax debt crisis. It sets out its own recommendations.

• During the last two years, the number of taxpayers in debt increased by 2.4 million to around 6.2 million and the average value of each debt increased by 60%, from £4,300 to £6,800.
• HMRC now allows longer terms for tax debt repayment plans which now average 14 months.
• The ongoing economic impact of the pandemic has left more taxpayers in vulnerable circumstances and less able to cope with their debts.
• Criminals took advantage of the pandemic to embezzle large sums of money.
• HMRC's policy of suspending debt collection in lock-down has led some people to sink further into unmanageable levels of debt.
• There is a particular risk from so-called ‘phoenix’ companies, referring to the practice of individuals continuing the same trade after winding up a company and also criminals impersonating HMRC and operating from call centres in India.

The PAC has found that:

• HMRC does currently not know how long it might take to reduce the debt balance to pre-pandemic levels and has not articulated a clear plan or set out a detailed timescale to give the PAC confidence it can manage the challenge it now faces.
• The longer that tax remains uncollected, the greater the risk that HMRC will never be able to collect it. This is unfair to the majority of taxpayers paying their fair share and results in a loss to the exchequer.
• Taxpayer debt does not sit in a vacuum and taxpayers may have many other pressures. This means HMRC will need: a better understanding of taxpayers’ ability to repay debt; more effective communications with those taxpayers; and decide whether it should make more or less use of private sector firms to help collect debts.
• HMRC is far behind where it needs to be in making good use of data to manage debt effectively.

The PAC now recommends, in summary:

• HMRC should return to it with a plan to manage the increased levels of debt back down to pre-pandemic levels within a specific timeframe.
• HMRC should set out how much more tax debt it can bring in with increased levels of capacity using private sector and public sector options.
• Estimate the number of rogue companies at risk of defaulting and the value of the tax at risk.
• Ensure commensurate resources are in place to prevent such fraudulent activity.
• HMRC should identify and obtain the data sources which are most relevant to understand the ongoing impact of the pandemic on businesses.
• HMRC should ensure regular and adequate training is in place for staff and it should carry out research to independently estimate how many vulnerable people are affected by tax debt and how effectively it is identifying those customers and write to us with its findings.

External links

The Public Accounts Committee: HMRC's Management of Tax Debt