Select Committee on Public Accounts Forty-Ninth Report

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.

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Prepared 25 November 2004