Pursuing recovery action
7. The longer
a debt remains outstanding the more difficult it is to collect,
so it is important to get people to pay as quickly as possible.
The National Audit Office's modelling showed that on self-assessed
Income Tax, the Department cleared only 59% of debt cases within
90 days, well below typical debt clearance rates in the utilities
sector of 90% within 90 days (Figure 2), even though taxpayers
have 10 months' notice of when a tax bill is due to be settled.
The modelling showed that peaks in the debts on self-assessed
Income Tax built up during September, January and March which
took up to 10 weeks to clear. Reducing these peaks could save
around £2 million a year by reducing the level of debt that
becomes over one year old, part of which would eventually be written
off.[8]
8. To reduce the level of debt over one year old,
the Department received additional funding under the "Spend
to Save" initiative in the 2003 Budget for an extra 75 staff
to bring in £85 million a year in tax revenue by 2007-08.
The Department believes it is on course to meet this target, having
recovered £20 million in 2003-04 against a target of £11
million.[9]
9. The Department could make better use of its Telephone
Centre. The Centre had been set up in 1999 to obtain outstanding
tax returns and collect most debts on PAYE, and it now also deals
with Corporation Tax and debts below £5,000 on self-assessed
Income Tax. A review in 2002 confirmed that the Telephone Centre
reduced the costs of servicing debt compared with other methods.[10]
10. To help speed up the collection of debt, large
volume lenders in the private sector used four or five debt collection
agencies and monitored the performance of each agent and their
in-house collection service according to the type and age of debt.
The Internal Revenue Service in the United States also plans to
outsource to commercial debt collection agencies the collection
of $13 billion in tax debt which would allow staff to focus on
the more complex, higher value cases. The Inland Revenue in the
United Kingdom has not outsourced the collection of debt because
of taxpayer confidentiality and data protection implications.[11]
11. The Department employs around 5,000 staff at
a cost of £92 million a year in local recovery offices which
take enforcement action on debts where initial recovery action
has been unsuccessful. This can involve seizing assets or court
proceedings. The number of enforcement actions increased from
155,000 in 2001-02 to 181,000 in 2002-03. In the private sector
there is a trend away from court action because of the costs involved.
As an alternative they aim to maintain long term relations with
the customer by trying to detect early those experiencing trouble
paying their debts and negotiating repayment solutions such as
rescheduling debt or suspending interest. Overseas tax authorities
use a range of other practices to recover debt which could provide
useful alternatives for the Inland Revenue to pursue instead of
court action (Figure 3). [12]Figure
3: Practices used by other tax authorities to recover debts
