1 Recovering Tax Debt
1. In 2008-09, HM Revenue and Customs (the Department)
collected tax revenues of £435.7 billion, £21.7 billion
lower than in 2007-08. The main falls in tax yield were in Stamp
Taxes (down by £6.1 billion, 45%), Corporation Tax (£5.0
billion, 11%), Value Added Tax (£6.4 billion, 8%) and Income
Tax and National Insurance Contributions (£5.7 billion, 2%).[2]
These were offset by increases in Capital Gains Tax (£2.7
billion) and Petroleum Revenue Tax (£0.9 billion).[3]
2. Much of the tax owed to the Department is not
paid on time. Of the total tax take of almost £436 billion
in 2008-09 some £100 billion was paid late.[4]
The fall in tax revenues because of the recession has been accompanied
by an increase in tax debt. At 31 March 2009, tax and tax credits
debtors owed the Department £27.7 billion, £2.7 billion
more than the previous year. The increase in debt is consistent
with a trend that was seen before the recession. The Department
has concentrated its resources on collecting very high value debt
with the result that low value debt has been allowed to build
up.[5] Based on the collection
rate it is currently achieving across taxes and allowing for the
effect of the recession, the Department has estimated that £11.2
billion of the debt held at 31 March 2009 is unlikely to be collected
(Figure 1).[6]
Figure 1: Total debt and provision for debt for which collection is considered doubtful
Source: HM Revenue and Customs Trust Statements[7]
3. The amount of debt that the Department considers
it is unlikely to recover has increased in recent years (Figure
2). At 40.2% of total debt, the provision for doubtful debt
at 31 March 2009 is considerably higher than those included in
previous years' accounts, and almost double the Department's estimate
of 23% in March 2006.[8]
This deterioration in the rate of debt recovery suggests that
billions of tax debt that would have been considered collectable
in previous years may not now be recovered. The Department ultimately
writes this debt off where it concludes there is no possibility
of getting it back, such as in a company insolvency, or if it
cannot track taxpayers down.[9]
Figure 2: The percentage of total debt considered doubtful
Source: HM Revenue and Customs Trust Statements[10]
4. The Department considers that it is making progress
in its management of debt. It has revised its debt strategy and
is now focussing on collecting debt much earlier, and prioritising
collection by risk rather than just value.[11]
It is helping those taxpayers who are willing and able to pay
their tax debt by introducing new payment methods, such as online
payment, and allowing viable businesses suffering temporary financial
difficulties more time to pay their tax debts.[12]
The Department has also increased its productivity and managed
to collect some £3.5 billion more in 2009 than the previous
year.[13]
5. The Department is still faced with system weaknesses,
particularly in its ability to profile debt by age and value quickly.[14]
The Department had planned to invest in a single IT system for
its debt management but decided to defer implementation because
of other funding priorities.[15]
Without this investment, the Department's ability to tackle the
problems it faces in getting to grips with tax debt is reduced.
An effective debt management system would allow the Department
to collect debt more quickly and reduce the amount of debt that
cannot be recovered at all. Given that £11.2 billion of tax
is at risk of being uncollectable, the benefits from investing
in a debt management system could easily outweigh its cost.[16]
2 C&AG's Report, para 1.5 Back
3
C&AG's Report, para 1.6 Back
4
Q 4 Back
5
Committee of Public Accounts, Twenty-sixth Report of Session 2008-09,
HM Revenue and Customs: management of tax debt, HC 216,
para 9 Back
6
C&AG's Report, Figure 2 Back
7
HM Revenue and Customs 2008-09 Accounts, HC (2008-09) 464;
2007-08 Accounts HC (2007-08) 674; 2006-07 Accounts,
HC (2006-07) 626; 2005-06 Accounts, HC (2005-06) 1159 Back
8
Q 4 Back
9
Q 14 Back
10
HM Revenue and Customs 2008-09 Accounts, HC (2008-09) 464;
2007-08 Accounts, HC (2007-08) 674; 2006-07 Accounts,
HC (2006-07) 626; 2005-06 Accounts, HC (2005-06) 1159 Back
11
Qq 4 and 25 Back
12
Q 26 Back
13
Qq 4 and 32 Back
14
Q 32 Back
15
C&AG's Report, HM Revenue and Customs: management of tax
debt, HC (2007-08) 1152, para 8e Back
16
Q 31 Back
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