Select Committee on Public Accounts Forty-Ninth Report

2 Preventing the build up of debt

15. Encouraging taxpayers to pay their taxes on time helps to prevent the build up of debt, reduce the costs of collection and secure earlier receipt of sums owed. The Department can help to achieve this by making payment as easy as possible through a range of payment methods and providing information, support and advice to taxpayers on their responsibilities and what to do if they have a problem.[16]

Payment methods

16. To make payment more convenient and efficient, the Department produced a strategy in January 2003 to increase the use of electronic payment. The Department offers 33 different payment methods, 23 of which are electronically based. Payment by cheque is the most popular, but two-thirds of payments (almost 55% by value) are made by electronic means. The Department introduced the facility to pay by debit card in 2003 for debts settled by its Telephone Centre and it plans to extend this to local offices from mid 2005. The Department does not accept payment by credit card because this attracts a service charge and would increase collection costs. The Department is looking at ways of minimising the costs, but legislation would be needed to allow it to pass on the costs to taxpayers. The Department also has some concerns about increasing the level of consumer credit card debt although it already expects taxpayers to draw on bank or building society deposits, call on amounts owed by third parties, realise stocks and shares, sell assets such as cars or borrow funds to pay any taxes due.[17]

17. Where the taxpayer does not have sufficient realisable assets, or is unable to borrow sufficient funds, the Department considers requests to pay by instalments. In 2002-03, it received thousands of requests from customers for additional time to pay. For example there were over 27,000 arrangements in place in the local recovery offices for paying off arrears on self assessed Income Tax. Instalments can be paid by direct debit but the Department is unable to impose this arrangement even when the taxpayer has defaulted on a tax bill in the past. Such a requirement would help in recovering debts but a change in legislation would be required.[18]

18. Of the £14 billion outstanding at 31March 2003, £4.9 billion was on PAYE. Employers should pay this over to the Department by the 19th of each month but, during 2002-03, only 52% of employers had paid by the 23rd of each month.[19] In our previous Report on Tax Credits and Tax Debt Management (HC 332, Session 2002-03) we concluded that the Department should increase its current target of half of all employers paying over tax deducted from employees' earnings by the statutory date.[20] Since April 2004, the Department has required employers with 250 employees or more to pay their PAYE electronically and a new surcharge has been introduced for persistent late payment. No similar measures were in place for small and medium sized employers.[21]

Information and advice for taxpayers

19. The Department provides a range of support and advice to help taxpayers understand their responsibilities for paying tax on time. It has set up a Payment Helpline to provide information to those experiencing difficulties in paying their debts. It has also seconded staff to voluntary sector organisations that advise taxpayers on debts and provides a dedicated phone line for voluntary sector debt advisers to obtain information to help in dealing with clients' problems.[22]

20. Some of the Department's leaflets on debt recovery were written in 1994, pre-dating the introduction of self-assessed Income Tax, and are out of date and inaccurate. The Department has therefore withdrawn these leaflets, and is updating them for issue during 2004. The material on the Department's website was limited to a high level summary of the collection processes, operational functions and enforcement actions. It does not include information on the Payment Helpline, which deals with time to pay requests, and the codes of practice. There are no links to other pages on the Department's website containing guides on enforcement action or links or contact details for other organisations that could help a taxpayer. Having upgraded its website in January 2004 the Department planned further improvements.[23]

21. Between 1999-2000 and 2002-03 the Department wrote off £789 million in National Insurance contributions debt, mainly owed by businesses that had become insolvent. Although the employer's debt is written off, the individual employee's contributions are deemed to be paid so the write-off does not reduce their entitlement to related welfare benefits. Entitlement to pension and benefits is however reduced if an individual employee has not made sufficient annual contributions. The Inland Revenue has started to send out deficiency notices to people who have made insufficient annual contributions. Pension forecasts are also available on request, to help people decide whether it would be worthwhile making additional contributions. In time the Inland Revenue and the Department for Work and Pensions hope to enable people to check their contribution and pension forecast electronically, but this depends on linking up the departments' computer systems.[24] In Simplicity, security and choice: Informed choices for working and saving the Department for Work and Pensions announced plans for increasing the range and number of pension forecasts it provides, together with employers and pension providers. [25]

16   C&AG's Report, Executive Summary para 16 Back

17   C&AG's Report, paras 4.2-4.5, Figure 15; Qq 87-89, 205-206 Back

18   Qq 103-105 Back

19   C&AG's Report, para 4.9, Figure 4  Back

20   29th Report from the Committee of Public Accounts, Inland Revenue: Tax Credits and Tax Debt Management (HC 332, Session 2002-03) Back

21   C&AG's Report, para 4.9; Qq 90-92 Back

22   C&AG's Report, para 4.13; Qq 120, 123 Back

23   C&AG's Report, para 4.15; Q 17 Back

24   Ev 22; para 10; Qq 64-66, 72-81 Back

25   Department for Work and Pensions, Simplicity, security and choice: Informed choices for work and saving (Cm 6111) February 2004. Back

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