HM Revenue and Customs: Improving the Processing and Collection of Tax: Income Tax, Corporation Tax, Stamp Duty Land Tax and Tax Credits - Public Accounts Committee Contents

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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Prepared 10 December 2009