Conclusions and recommendations
1. The Department should impose a surcharge
on persistent late payers and oblige them to pay the tax and contributions
they deduct from their employees into a designated bank account.
The Department writes off debts of almost £0.5 billion a
year because of insolvencies and, of the £3 billion of debt
over one year old, around £1.2 billion is owed by insolvent
companies or individuals. Much of this is tax and contributions
deducted by employers from the pay of their employees. The Department
should, as a minimum, demand security from businesses who have
a poor payment record to provide cover for future tax bills, as
some overseas tax authorities and HM Customs and Excise can do.
2. The Department should make maximum use
of other Departments' records to find taxpayers it cannot trace,
and seek a legal power to require taxpayers to provide up to date
contact details. The Department has written
off some £55 million a year because it could not trace the
taxpayer and a further £300 million of debt over one year
old relates to cases for which the Department does not have up
to date contact telephone numbers and addresses.
3. The Department should seek to achieve similar
debt clearance rates to the utilities sector.
On self-assessed Income Tax, the Department cleared only 59% of
cases within 90 days compared with a debt clearance rate of 90%
in the utilities sector. Eliminating the backlogs that
build up periodically during the year would be a useful first
step which could save around £2 million a year in preventing
the build-up of older debt and associated write-offs.
4. To improve efficiency, all debts should
initially be pursued through the Department's Telephone Centre.
All debts should moreover be handled through the Department's
automated Integrated Debt Management System.
The Department will then find it easier to pursue individuals
and companies for the various debts they owe on different tax
streams at the same time. This will be an important step in ensuring
that the new HM Revenue and Customs has systems to manage debts
efficiently across its customer base.
5. The Department should seek additional powers
for enforcing debts, similar to those of other tax authorities.
These include recovery of debt from a person's salary or from
funds held by their bank or other third party without the need
to go to court. Recovering debts through court action is expensive
for the Department and yet it has had to make increasing use of
this method of enforcing debts.
6. The Department should provide the facility
to pay by credit card, passing on any service charge to taxpayers
who use this method. It should also be able to require payment
by direct debit where the taxpayer has previously defaulted on
a tax bill. Giving taxpayers additional
means of payment should help to speed up and increase the revenue
actually collected. A number of other public authorities accept
credit card payments.
7. The Department should provide up to date
and accurate information and advice to those in debt on its website
and in leaflets in different languages.
Improved communication would help taxpayers understand their obligations
and go some way towards helping those who do not have access to
professional advice. The Department's leaflets have been out of
date for too long, and its website does not provide important
information on the Payment Helpline, codes of practice and other
sources of advice.
8. The Department's performance
measures should include, for all types of tax and national insurance
contribution debt, the percentage of taxpayers who pay on time,
the percentage of debt collected within 30 days and the percentage
of debt collected within 90 days. Such
data would help focus on minimising debt levels and speeding up
recovery, in line with good practice in debt management. The current
targets focus solely on the percentage of taxpayers that pay their
taxes within 12 months of the due date.
9. The Department should analyse the debt
record of different types of taxpayer and use risk scoring techniques
to identify the need for early action to support those taxpayers
who are more likely to get into debt.
The Department analyses how taxpayers' characteristics affect
their tax compliance record. Similar analysis of the debt record
of taxpayer groups, combined with the use of risk scoring techniques,
would enable the Department to develop expected payment profiles
for taxpayers based on type and location.