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HMRC ‘must push harder’ to pull back tax debt

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HMRC’s ability to claw back the billions in tax debt after the pandemic has been called into question in a new report released today from an influential group of MPs. 

26th Mar 2022
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HMRC faces an “enormous task” to bring the tax debt back from £39m to the pre-pandemic levels of £16bn, but the Public Accounts Committee (PAC) is “not confident” the tax authority will manage this challenge. 

The Committee has raised concerns that HMRC “does not know how long it might take to reduce the debt balance to pre-pandemic levels” and it hasn’t “clearly articulated a clear plan” or a detailed timescale. 

HMRC has also been urged to “strike a difficult balance” between actively pursuing those who back pay their tax debts but are choosing not to, while supporting individuals and businesses struggling with the ongoing impact of the pandemic.

“Those least able to afford rising bills, including tax bills, are also the easiest collection ‘targets’,” said Meg Hillier, the chair of PAC. “HMRC must tread carefully, taking a sensitive approach that supports a renewing economy, and doesn’t necessarily include bailiffs coming knocking.”

Tackle phoenix and rogue companies

According to the committee, HMRC should instead be pursuing the rogue companies that exploited the temporary insolvency restrictions during the pandemic and the Covid support loans to “embezzle large sums during the pandemic”.  

“HMRC’s challenges chasing down high-wealth individuals and companies who take advantage of every trick in the book to avoid and evade tax and outrun the law are well-known,” said Hillier. 

“Those tricks are just not available to ordinary people, now emerging from the misery of the pandemic into an exploding cost-of-living crisis. HMRC must push much harder at the doors – no matter where they are – of those who are not paying their fair share.”

The MPs have highlighted the risk of phoenix companies after the National Audit Office found HMRC has no data on the scale of this activity in the past. 

The PAC acknowledged that HMRC is developing a strategy to tackle phoenix companies through using new powers, but urged the tax authority to “bring the full force of the law to bear on those who defraud the Exchequer, and report publicly and regularly to Parliament on the numbers prosecuted”.

Recovering debt

The other part of HMRC’s challenge is actually recovering the debt. As the PAC pointed out, “The longer a debt is left, the harder it is to collect.” 

For this reason, the MPs have pushed HMRC to be more ambitious in bringing down debt levels. But the committee is concerned that staff reductions before the pandemic and a lack of appropriately trained HMRC staff will lead to more debt going unpaid.

The report suggested that HMRC has a clear value-for-money case to increasing debt management capacity.  

But what the committee is least satisfied with is HMRC’s lack of a clear plan in tackling the debt. HMRC could only give the PAC a vague timeframe when tax debt would return to pre-pandemic levels.  

HMRC expects the debt balance to surpass the £33bn it forecasted in September 2021, but the tax authority couldn’t say how much higher it will be. The PAC criticised HMRC’s lack of a clear plan and recommended it rolls out long-term forecasts for tax debt, including the target levels.

The MPs pinpointed insolvencies as the main cause for bad (unpaid) debt and warned that HMRC has an “unknown backlog of insolvency cases”. It’s calling on HMRC to provide for more transparency over the level of write-offs and remissions HMRC is providing for.

HMRC responds

Responding to the report, an HMRC spokesperson said: “We’ve already made significant progress in reducing tax debts. We are recouping debt safely, taking into account customers’ circumstances and making repayments affordable. It’s in no one’s interests to push viable businesses into insolvency when they can succeed given some time to repay their tax debts.

“As part of this we are recruiting almost 2,000 extra debt collection staff in 2022-23 to support customers.

“Our message to taxpayers is simple: if you can pay your taxes, you should do so – but if you’re struggling, speak to us and we’ll do our best to support you.”

The PAC has closely scrutinised HMRC’s “soft on fraud” track record during the pandemic in recouping Covid support lost to fraud and error. 

“With the current parlous state of the public finances we can ill afford to be so cavalier over so much taxpayers’ money,” Hillier said, responding at the time to HMRC’s approach to recovering fraudulent payment. 

The eye-watering amount of lost to Covid fraud and error has been a bugbear of the MPs. In a separate report the MPs took their frustration out on the government for the “unacceptable” billions of taxpayers’ money risked and lost to Covid fraud and error. That report found that at least £15bn has been lost to fraud across all Covid schemes. 

Replies (6)

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the sea otter
By memyself-eye
27th Mar 2022 16:22

Maybe if they spent fewer resources on pointless IR35 (and similar) cases they might have enough idiots left to 'solve' this......

But I doubt it.

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By Paul Crowley
27th Mar 2022 19:32

HMRC are rubbish at tax collection
Maybe they could create a new organisaton called say "The Collector of Taxes"

Thanks (4)
By ireallyshouldknowthisbut
28th Mar 2022 10:56

HMRC dont seem very interested in collecting debts from our clients.

Corporation tax reminders no longer exist and clients often miss the deadline....and several months later when we see the accounts they have not had so much as a nudge.
I have a client who's VAT didnt get collected.............5 months ago. Not so much as a letter in the post.
I have another client who has long running SA debts, no effort made by them, just auto-penalties and the odd letter.

And this is just the routine stuff, let along any fraud.

There is still no DD collection of PAYE.
DD for VAT is much harder post MTD as agents cant set it up.

There seems no serious attempts to get the basics working let alone fraud.

If HMRC were a business it would have failed years ago, and yet the answer seems to be cut more staff, more computer systems and 'nudges'.

Thanks (1)
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By Steve99
28th Mar 2022 13:10

The rot set in when they moved from local debt management teams to centralised teams. In the good old days DM officers knew their patch and went out locally enforcing the debt. 40 years ago I did the books for a company and on a weekly basis an officer turned up to get his £5k paye & nic debt, it definitely focused the mind of the director having him there...

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By Paul Crowley
28th Mar 2022 16:50

Just needed to look at a client PAYE code
Noticed that £6K owed from ye 2016
Why does anyone bother paying tax? Nothing happens if the debt is ignored

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Replying to Paul Crowley:
the sea otter
By memyself-eye
28th Mar 2022 19:49

yeah - before I retired to my oligarch yacht moored off the coast of Nuneaton (and therefore out of reach of sanctions) I had a client owed £6k to HMRC (all fines and interest for non submission tax returns). No chasing up, no bailiffs.

He wasn't that bothered (too stupid) so nowt happened.

Am now moving my yacht to the tax haven called Mancetter before my Ukranian crew pull the plug.......

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