MPs Blast HMRC Over Level Of Tax Debt

by Robert Lee, Tax-News.com, London

15 June 2009

An influential cross-party parliamentary committee in the UK has called on HM Revenue and Customs to improve its system for collecting outstanding tax debt after learning that the amount of money owed to the tax collector had grown to more than GBP17bn.

A Commons Public Accounts Committee report, published on June 8, examined how taxpayers could be encouraged to pay on time, and HMRC's debt recovery and management systems could be improved in a recession. It concluded that HMRC should consider investing in new technology to link taxpayer records and put in place more flexible work patterns to enable it to chase up tax debts more efficiently.

"Nearly a third of all tax payments are late and the amount of money owed to HMRC is enormous - over GBP17bn at the last reckoning," commented Edward Leigh, committee chairman, who added that the number of tax debts had risen by 22% over 2007-08. He continued:

"The department must try every means it can to tackle what is likely to become a growing problem of tax debt, while making allowance for people and businesses in temporary financial difficulties."

"HMRC has been slow to take advantage of the key techniques used by other organizations to manage debt owed to them. It has started to make more methods of payment available to taxpayers - such as credit cards and direct debits - but it could take advantage of the latest developments in payment technology. Its debt collection activities also tend to be conducted on a 9 to 5 basis which is not always the best way of contacting tax debtors."

While HMRC has said that it cannot afford a new IT system to link all the tax records of an individual taxpayer, Leigh said that linking of debts is "crucial to effective debt management" and he urged the department to introduce a staged programme towards this goal.

In 2007-08, HMRC collected around GBP450bn in tax and National Insurance contributions from 35 million taxpayers. As at March 31, 2008 the Department was owed GBP17.3bn in outstanding tax, interest and penalties, GBP4.5bn of which was more than a year old. During 2007-2008, 30% of tax payments were made after they were due.

However, according to PKF Accountants and business advisers, the GBP17bn figure is “only half the story” because there is a lot more tax that is due that HMRC is not chasing – the so-called ‘tax gap.’ HMRC estimated that this is between GBP11bn and GBP41bn for 2003/04 and that ignores taxes such as VAT. PKF believes the tax gap figure is higher still given recent staffing cutbacks.

“There are numerous other estimates covering additional taxes such as duty on cigarettes and it is impossible to tell the exact amount, as is evident from the huge width of the estimate,” said John Cassidy, Tax Investigations Partner at PKF.

“However, even if it is in the middle of the range at GBP26bn, this is an astonishing amount of money. Adding GBP17bn to GBP26bn, means that HMRC believes that each taxpayer in the UK owes the taxman about GBP1,500 on average,” he added.

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