UK Tax Debts Soar

by Robert Lee, Tax-News.com, London

20 November 2008

The total number of debts owed by taxpayers in the United Kingdom to HM Revenue and Customs (HMRC) has risen by 22% in the past year as a result of the economic slowdown and a change in the tax collector's debt management strategy, according to a National Audit Office (NAO) report.

The NAO's report on the management of tax debt by HMRC shows that the number of tax debts increased from 13 million to 15.8 million over the year, in part due to the increase in the number of taxpayers and wider trends in consumer debt. However, the report said that the figures also reflect a change in HMRC’s priorities as it focuses on higher value debts with fewer resources.

HMRC collected around GBP450bn in 2007-08 in tax and National Insurance contributions from the UK’s 35 million taxpayers, ranging from individuals to large multinational corporations. In March 2008, GBP21.5bn was outstanding on its debt management systems. GBP17.3bn was in outstanding tax, interest and penalties whilst the remainder was overpayments of benefits and tax credits.

In 2007-08, HMRC’s Debt Management and Banking directorate collected around GBP310 for every GBP1 spent, an increase of 10% on the year before. The Revenue was also praised for an overall improvement in how it manages tax debt. But the NAO concluded that HMRC cannot reliably measure the relative cost-effectiveness of different debt collection activities.

The tax department was also criticised by the NAO for failing to introduce some of the measures recommended by the House of Commons Committee of Public Accounts in its previous report on debt, which have also helped other organisations to improve their debt management. Measures include risk profiling; managing debt through a single IT system; linking and pursuing together debts owed by an individual taxpayer on different taxes; innovative methods for communicating with customers; and a more efficient telephone centre operation.

Tim Burr, head of the National Audit Office, said: “HMRC has improved the way it manages tax debt. But it has made limited progress in implementing some measures recommended by the Committee of Public Accounts in 2004 that would help it manage the growing level of debt in a more difficult economic climate. To manage tax debt more effectively, HMRC should link different debts owed on each tax by the same taxpayer and prioritise debts which are less likely to be paid without action by the Department.”

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