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Has HMRC given up on debt collection?

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Readers of two recent reports on tax debt by the National Audit Office and the House of Commons Public Accounts Committee may decide that this is a fair question.

29th Mar 2022
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In November 2021, the National Audit Office (NAO) issued the first salvo entitled Managing tax debt through the pandemic. Last week, using and updating some of the data from that report, the Public Accounts Committee (PAC) followed suit with its 48th report on HMRC’s management of tax debt.

Both are chilling in their conclusions that our taxing authority is failing to follow up debts in far too many cases. Indeed, during the early months of the pandemic, tax collection ground to an almost complete standstill, relying on those with tax liabilities to do the decent thing. In very many cases, they couldn’t or didn’t.

Headline numbers

Pre-pandemic, HMRC was owed £16bn; that sounds like a terrifying amount, until you discover that the figure now stands at £39bn, having peaked at £67bn in August 2020. The number of taxpayers in debt had risen from 3.8 million to 6.2 million by September 2021 and the average duration of repayment is 14 months.

NAO identifies the underlying reasons “In response to the pandemic, government policies allowed taxpayers more time to pay VAT and self assessment, and government restricted debt collection activity more generally across the economy.”

In 2018-19, write-offs and remissions of tax debts reached £4.8bn. Given the impact of the pandemic, that would appear to be the tip of the iceberg.

The PAC understands the financial pressures that some will suffer but believes “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.”

NAO was unimpressed by “efficiencies” that replaced staff with a new telephony system and business process re-engineering. While HMRC has ostensibly maintained collection levels across most taxes, this is only achieved at two thirds of new debt created each year, with write-offs increasing.

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Replies (23)

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By Hugo Fair
29th Mar 2022 12:30

Are rhetorical questions back in fashion as article headlines?

FWIW the NAO doesn't so much say that HMRC have given up on debt collection ... more that they need to go back to school and re-learn the business they are meant to be operating (tax collection), along with an understanding of what drives their 'customers' (i.e. how people behave when faced with the opportunity to ignore their taxpayer responsibilities). So back to kindergarten for HMRC!

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By Gerry Brown
30th Mar 2022 09:30

This situation must be addressed without further delay. Derby County reported owe HMRC in excess of £30 million. How did this happen? HMRC should be on the phone to large organisations (including professional sports clubs) if PAYE and VAT aren't remitted within (say) three working days of the due date. A visit shoud be made if payment hasn't been received within a further week. Letting matters drag on helps no-one. The self-employed should be encouraged to make payments to account of income tax on a monthly basis. There is a case for putting such monthly payments on a statutory basis.

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Replying to Gerry Brown:
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By johnjenkins
30th Mar 2022 09:56

Gerry, I'm a bit disturbed that you are intimating that the self-employed, even though most pay their tax on time, should fill the HMRC tax gap by paying sooner than legally required.
When HMRC got rid of their tax collection departments and outsourced it, that's when it started to go down the pan. It's not rocket science to see what has happened. HMRC outsourced debt collectors do not have any power, so most have to go back to HMRC, who do not have the manpower cos they all went to the outsourcing companies. Don't forget chasing corporation tax when there is CIS tax to offset doesn't bode well. HMRC can't deal with post, can't answer the phone etc. etc. but don't worry getting money from the self-employed on a statutory monthly basis will be the answer.

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Replying to johnjenkins:
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By meadowsaw227
30th Mar 2022 10:07

IMHO lots of self employed can not be trusted to save for their tax payments and therefore a monthly payment on account would help everybody

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Replying to meadowsaw227:
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By johnjenkins
30th Mar 2022 10:21

I bet you would trust them to fix your plumbing though.

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Replying to meadowsaw227:
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By flightdeck
30th Mar 2022 17:38

I'm not sure that its that they cannot be trusted but that some of them can't grasp accounts and how it all works.

A self-employed tradesperson friend showed me a letter from his accountant telling him what tax would be due on what dates. But he simply had no idea how his tax had been arrived at (despite being given all the workings out) and what those dates were about or the concept of payment on account. And he's been self employed for years. He seemed quite ashamed to admit this to me and my heart went out to him.

In the end I sat down for an hour with him drawing a timeline of his tax and payments the last couple of years to try and explain it. He has no problems paying his tax and always does but pay but does so entirely on faith. The whole thing was (probably still is) a mystery to him, he just trusts his accountant and HMRC are right about it all. (What could possibly go wrong???)

He is not stupid but it's just not his world. He thinks he is bad at maths and visibly shrinks away from numbers (and he is, very bad at maths but that's a schooling let-down, not a native intelligence issue).

We are lumping more and more actually quite specialised work onto ordinary people, like MTD. And I think he's losing some on-line HMRC payroll tools soon too? Not sure can't remember, something was going anyway and now he's got to try and figure out how to do that in xero which seems straightforward to me (I'm not an accountant but I am tech) but talking to him face to face you see how ordinary people struggle because they have none of the background basics to help them along. We assume far too much of people.

This is where HMRC go wrong and automating with stupid chat bots is a crap, crap, crap way to support the army of small business keeping the country going. GRRRR!!!

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Replying to flightdeck:
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By gillybean04
01st Apr 2022 00:24

I don't think it's a failing of the schooling anymore than my artistic ability, being limited to that of a typical 8 year old, is. We're not all good at the same things, and that's perfectly okay. You use what you can do, to help those that can't do.

Different parts with different purposes. Individually not much use but collectively, a (hopefully) working machine.

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Replying to johnjenkins:
By Charlie Carne
30th Mar 2022 12:18

johnjenkins wrote:

HMRC outsourced debt collectors do not have any power, so most have to go back to HMRC, who do not have the manpower cos they all went to the outsourcing companies.

Surely they have the power to instigate debt recovery through the courts?

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Replying to charliecarne:
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By johnjenkins
30th Mar 2022 12:38

No. Tax is not like an ordinary debt. HMRC cannot sell the debt on nor can they transfer their court power. If they can't collect they send it back to HMRC who normally send it to their "last ditch" department.

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Replying to Gerry Brown:
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By Herd
30th Mar 2022 10:24

Very interesting what you say about Derby County because HMRC certainly went after Southend United. As a result of their debt to HMRC a transfer embargo was placed on Southend United and was a major factor of why they went out the league. I assume these figures don't include Furlough fraud. Getting back to the main issue getting HMRC back to work would be a big start.

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Replying to Herd:
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By johnjenkins
30th Mar 2022 10:45

"getting HMRC back to work would be a big start." Just love it.

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By norstar
30th Mar 2022 10:28

Can someone explain to me how it makes sense to give someone thousands of pounds in SEISS grants, or CJRS payments, local authority grants etc, when that "taxpayer" owes thousands in taxes going back several years?

It's a scandal and I don't know why it's not highlighted more. Rishi is culpable.

I've seen it time and time again - at the moment the worst cases are left alone and continue to rack up debt while HMRC penalise the compliant with penalties etc - then hound them. It's disgusting.

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By TASG
30th Mar 2022 10:40

It is too easy in my experience to get a 1 year Time To Pay arrangement with insufficient questions and safeguards. My client, for example, has agreed a TTP on a £1k SA liability not because he cannot afford to pay - he can - but because it was so easy.

This mañana culture is entirely avoidable - simply push back on taxpayers by asking some simple questions like "how much money do you have in your bank account now".

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By AndrewV12
30th Mar 2022 12:49

'Pre-pandemic, HMRC was owed £16bn; that sounds like a terrifying amount, until you discover that the figure now stands at £39bn, having peaked at £67bn in August 2020. The number of taxpayers in debt had risen from 3.8 million to 6.2 million by September 2021 and the average duration of repayment is 14 months.'

It is estimated 32,475,000 people work in the UK, that's means 20% of the work force in debt to HMRC.

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By Gerry Brown
30th Mar 2022 12:55

In my view the government has piled too many additional tasks on HMRC (e.g. national minimum wage, trustee registration) without providing sufficient resources to adequately deal with those tasks.

I'm sure all the contribtors to this discussion could devise collection strategies which would quickly reduce the debt - common sense approaches.

But HMRC/Treasury/Chancellor seem to be operating in a parallel universe where common sense is disregarded.

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Replying to Gerry Brown:
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By johnjenkins
30th Mar 2022 13:45

I agree about the common sense approach, but if you have a common sense approach to collection you first have to have a common sense approach to taxation. It would be interesting to know how much of the debt is penalties and how much actual tax, including CIS offset. I have no doubt that this figure will reduce over the next 12 months as bankruptcies and insolvencies rear their ugly heads. Still I'm sure MTD will bring in more money than the treasury ever dreamed of.

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By farrcorfe
30th Mar 2022 14:39

How about appointing someone with common sense (a rare commodity at the Revenue) and statutory powers to get this money in - preferably an accountant who has run their own business rather than the time servers at the big 4 et al.? Go for personal assets of directors of the insolvent companies and also do something effective about phoenix companies. Get a grip HMRC!

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Replying to farrcorfe:
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By johnjenkins
30th Mar 2022 15:04

Unfortunately with that "carte blanche" approach, the genuine needy will get clobbered, but then that's always the case.

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Replying to farrcorfe:
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By tedbuck
30th Mar 2022 15:22

Couldn't disagree about the common sense but it is a rare commodity these days.
I was dealing with a debt collection company representing HMRC and it was a hopeless situation because HMRC were so far behind they hadn't processed a loss claim that wiped out the debt. Where do you go from there?
I don't doubt that similar circumstances will obtain elsewhere so how much of the so called debt will actually be outstanding.
I also find that HMRC are not very good at recording the agreements they make - I expect the notes are used to light the household fire whilst wfh.
Answers?
1. Get HMRC employees back to the office.
2. Forget MTD and get the piles of post down to < 1 week.
3. Put intelligent people at the end of the telephones so that questions can be answered as they used to be in the good old days (Acronym GOD? must be pertinent)
4. Sharpen up the collection procedures and issue statements! The number of clients who forget to pay because they have received nothing from HMRC absolutely beggars the imagination.
None of that should be too difficult even with limited common sense. (You really cannot expect ex university graduates to have common sense as there is no-one in the universities to teach it!)

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By Mr J Andrews
30th Mar 2022 16:57

My cynical side tells me that remaining HMRC staff find life much easier going for the soft option of remission on 'reasonable' grounds rather than pursuit of dues. Mr Micawber's philosophy clearly not followed.
Neither NAO nor PAC have referred to the HMRC's internal ''Debt Management & Banking Manual''. A voluminous bible of administrative procedures for any tax official to get his head around , particularly a large section regarding Revenue losses - the content withheld because of exemptions in the 2000 Freedom of Information Act. But a certain stratagem { C495 Procedure } alludes to the elaborate chain of command for authorising waiver of startling amounts varying from £250K , £500K .........................Perhaps the above bodies should have analysed the big boys amongst the peak of £67bn.
And no wonder this must be the most bowdlerised manual on the planet .

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By Ash Business Consultants
31st Mar 2022 01:50

Well they were throwing money around like it was the end of the world with no checks or balances, whilst simultaneously shutting down the world economy then firing it up then shutting it down then spinning it around, including fragmenting their own organisation, and of course ploughing on with such things as MTD with dubious benefits, mothballing their own supported software and expecting us accountants to do it all and pay for the privilege, AML fees.

Soon you'll phone them up and all they will say is speak to your third party IT software provider, it must be an issue their end and you'll phone them and they will say well we just access the data HMRC hold it must be a problem at their end and you are caught in a no man's land because no one any longer has ownership of the full process.

In short tax in this country has too many moving parts, is too fragmented, overly complex, there is no ownership nor any real expertise at HMRC anymore and they have abdicated all their duties of this sorry state of affairs to the average Joe on the street. Bad enough when it was just tax but now throw in all the IT requirements and very few have the expertise or understanding required and then they come to us the accountants to sort it out. Which means be the bookkeeper, collect the paperwork, digitise it, be the IT specialist, time manage the customer (because he's got another boiler to fix, wall to build, got an e-bay sales order to fulfil to outer Mongolia), be the payroll department, fulfil the pension duties.... and then explain the figures you produce to a person that looks at it blankly scratches their [***] and says "er yeah OK if you tell me that's the figure" then puts it in the round filing cabinet as a customer screams down their phone "my boiler's broken down again", "look I gotta go, see you next year/month/quarter..." (or straight away if they are applying for a mortgage.. "so how quick can we do me tax, I need a mortgage?")

Welcome to the chaos, and no one appreciates you for it, not even at a party... "what do you do for a living?" ...... who am I kidding I don't go to parties I go to award ceremonies full of other accountants, or business expo's (I'm lying I don't even go to those I don't work for one of the big 4).

Death and taxes as they say, well the death part will probably be an improvement, hopefully there won't be spread sheets.

Enjoy folks it's just numbers at the end of the day anyway, what's the UK national debt now, what's the US or Japans? There's no paying this off it's just a never-ending cycle of print more money it's practically meaningless. I once had an insolvency company say yeah it's only £40k HMRC won't even turn up to the creditors meeting, we'll just write a letter to the Registrar of Companies that he was a bit of a naughty boy but it won't stop him from being a Director..... and he was right.

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Replying to Ash Business Consultants:
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By rockallj
31st Mar 2022 02:34

[/quote]

Soon you'll phone them up and all they will say is speak to your third party IT software provider, it must be an issue their end and you'll phone them and they will say well we just access the data HMRC hold it must be a problem at their end and you are caught in a no man's land because no one any longer has ownership of the full process.

[/quote]

I’ve already experienced exactly this with MTDfVAT. Heaven help us when MTD IT comes in!

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By kenny achampong
31st Mar 2022 11:31

I'd love to know who at HMRC decided to stop sending out any corporation tax bills a few years ago. They must have had a meeting, and somebody must have suggested it. And how did they ever find anybody who agreed that it might be a good idea ? What did they think would happen ? It's not as stupid as MTD but not far off it.

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