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mule with large burden | accountingweb | Expanding tax debt is a big problem

Expanding tax debt is a huge burden


When taxpayers owe large amounts of tax to HMRC it’s a serious problem for the individuals or businesses concerned, but also for HMRC who must spend more resources chasing for payment.

1st Sep 2023
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The amount of tax owed to HMRC ballooned during the Covid pandemic period, as taxpayers were permitted to defer payments of VAT due in the second quarter of 2020 and the self assessment income tax instalments due in July 2020. The total amount of tax debt rose to £67bn in August 2020, from its normal level of £16bn in January 2020

This mountain of tax debt diminished after the pandemic to £42bn in June 2022, but a year on the debt pile had grown again to £45.9bn by 30 June 2023. 

This increase is worrying because it represents new tax debt that is not a pandemic hangover. HMRC admits in its performance update to June 2023 that the value of the new tax debt is 50% higher in 2021/22 than arose on average in the tax years 2017/18 to 2019/20. What’s more, the flow of new tax debt has remained at that high level throughout 2022/23.

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Replies (5)

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By Hugo Fair
01st Sep 2023 19:30

"This interest rate is better than the rates that most banks are paying on commercial business accounts. The company will of course have to pay tax on that interest in a year’s time."

... but interest on overpayment of other types of tax (IT, IHT, etc) is NOT taxable?

Thanks (2)
By Hugo Fair
01st Sep 2023 20:30

I don't suppose HMRC has released any figures relating to TTP agreements - in particular:
- what %age run through to the final payment?
- what %age are eventually written-off?
- what %age of those that clear the original debt (whether via initial TTP or a subsequent demand for the balance) are still trading 2 / 3 / 5 years later?

Oh, and the increase in "total amount of tax debt" (from £16bn to £67bn) represents what?
- amounts reported but unpaid or overdue?
- amounts individually estimated by HMRC?
- amounts 'guessed/forecast' in total by HMRC (as per the infamous 'tax gap')?

Thanks (6)
By sallyhayes
04th Sep 2023 09:40

It would be immensely helpful if there was functionality in the agent system to allow agents to download a list of all clients with overdue bills, especially in the PAYE system. I suspect many agents would then run a report each month to remind their clients.

Thanks (2)
By Ben Alligin
04th Sep 2023 10:41

I have had several clients owing hundreds of thousands £ of tax for years, and one poor aspiring musician who started her musical career the year before Covid. The latter had a really good first year of trading, she dutifully saved all her tax for her tax liability and then Covid struck. She hadn't been trading long enough for any Covid support grants, and with 3 young children and only Universal Credit to fall back on, she had to spend her saved tax money on rent and food since she had no other way of earning money (all concert venues closed down for nearly 2 years).

Question: Which tax payer(s) are HMRC relentlessly pursing?!

Answer: Of course the penniless musician.

Why waste resources chasing after clients who owe £100ks of tax, with several properties in their private names, and no corporate/trust/offshore to hide behind? Until someone at HMRC/Debt Recovery Team actually engages a neuron or two, then this problem will persist.

One client even died owing HMRC £100ks tax as far back as 2012. Someone rang from HMRC recently not chasing the debt but on another matter with this clien, and literally shrugged their shoulders when I pointed out that they were an 'Ex Client' akin to a certain Nordic Blue psittacine. Case closed, it only took them 11 years to follow up on a separate matter, the fact that £thousands of tax had been lost in the interim due to their utter incompetence didn't even merit a response.

Here's a radical idea HMRC. Look at which tax payers owe you the most tax and put them at the top of your list and work your way down the list, not start at the bottom with no tax liability owing and work your way upwards! This ties in neatly with Rebecca's previous article about HMRC chasing/enforcing late filling penalties for 40% of the population who have no tax liability whatsoever.

Thanks (0)
By michael2022A
11th Sep 2023 14:06

HMRC's collection of tax is poor and perhaps worse inconsistent. I know of companies that owe thousands that dont get chased and yet smaller debts are threatened with court action. Surely the debts are being chased by the same system yet we get inconsistencies!

Thanks (0)