The National Audit Report (NAO) has published a report on how HMRC has managed the collection of tax debt through the pandemic – in particular, whether it has adapted sufficiently to the changing nature and scale of that debt and the wider circumstances that affect taxpayers’ ability to repay tax, and whether it is likely to have sufficient capacity in the future.
Key findings on HMRC’s capacity to manage debt include:
HMRC is unlikely to have sufficient capacity in the short term to manage increased levels of tax debt arising from the pandemic. Although HMRC intends to recruit 1,000 staff in 2021/22, the report suggests this will only cover HMRC’s current shortfall in staff. Latest estimates indicate that HMRC will have twice the level of debt to manage by the end of March 2022 compared to the pre-pandemic position. The report notes that new debtors may require extra support in the short term to agree payment plans, with increased effort on the part of HMRC to maintain regular contact with those taxpayers – a critical factor in recovering tax debt.
HMRC’s estimates indicate that new powers, tools and increases in capacity, planned before covid-19 (including the automation of telephone helplines, increased use of self-service options and introduction of the single customer account) are unlikely to bridge the gap.
To address the increase in demand for its services, the report recommends that HMRC should:
consider using recruitment and private sector options and explore how to speed up training to increase capacity more quickly;
model the potential scale of work needed to manage debt effectively for different post-pandemic scenarios and assess whether there is sufficient capacity to meet those scenarios;
in terms of operational efficiency, aim for a significant increase in the return from new and existing capacity; and
identify how debt management needs to operate differently to deal with the changed nature and amount of debt, including how to target older debt which typically is more difficult to collect.
Given that HMRC is restricted in its ability to scale up capacity in the short term, the report recommends developing capability in other ways, including:
considering whether resources are needed for more tools to support debt management (such as data analytics, the single customer account, and online tools for setting up payment arrangements for business customers);
developing HMRC’s understanding of the effectiveness of the different tools and interventions that it already uses and how they interact, to help allocate resources in the most efficient way;
adopting best practices from the private sector and from HMRC’s own handling of debt during the pandemic on a permanent basis, and routinely signposting independent debt advice (including debt charities) to help reduce the burden on HMRC’s extra support team; and
raising awareness of HMRC’s powers to deal with companies which deliberately misuse the insolvency rules – to act as a deterrent against potential avoidance behaviour.
Commenting on the report, Dawn Register, Head of Tax Dispute Resolution at BDO, said: ‘With many Covid-19 support measures now withdrawn, there is likely to be a strong emphasis on collecting unpaid tax regardless of whether HMRC remains understaffed. A lack of resources could even result in more punitive action for non-compliance given that HMRC will be under pressure to resolve situations quickly.
‘The Government is investing £100m into HMRC to build up its Taxpayer Protection Taskforce to go after an estimated £5.2bn in pandemic support fraud but the current tax debt of £42bn dwarfs this figure, and it must be worth investing more in HMRC’s debt management service to collect that. In my experience, better service from HMRC’s debt team helps struggling businesses and individuals pay back more and faster, so it has to be a good investment for the Government in the long run.’
The National Audit Report (NAO) has published a report on how HMRC has managed the collection of tax debt through the pandemic – in particular, whether it has adapted sufficiently to the changing nature and scale of that debt and the wider circumstances that affect taxpayers’ ability to repay tax, and whether it is likely to have sufficient capacity in the future.
Key findings on HMRC’s capacity to manage debt include:
HMRC is unlikely to have sufficient capacity in the short term to manage increased levels of tax debt arising from the pandemic. Although HMRC intends to recruit 1,000 staff in 2021/22, the report suggests this will only cover HMRC’s current shortfall in staff. Latest estimates indicate that HMRC will have twice the level of debt to manage by the end of March 2022 compared to the pre-pandemic position. The report notes that new debtors may require extra support in the short term to agree payment plans, with increased effort on the part of HMRC to maintain regular contact with those taxpayers – a critical factor in recovering tax debt.
HMRC’s estimates indicate that new powers, tools and increases in capacity, planned before covid-19 (including the automation of telephone helplines, increased use of self-service options and introduction of the single customer account) are unlikely to bridge the gap.
To address the increase in demand for its services, the report recommends that HMRC should:
consider using recruitment and private sector options and explore how to speed up training to increase capacity more quickly;
model the potential scale of work needed to manage debt effectively for different post-pandemic scenarios and assess whether there is sufficient capacity to meet those scenarios;
in terms of operational efficiency, aim for a significant increase in the return from new and existing capacity; and
identify how debt management needs to operate differently to deal with the changed nature and amount of debt, including how to target older debt which typically is more difficult to collect.
Given that HMRC is restricted in its ability to scale up capacity in the short term, the report recommends developing capability in other ways, including:
considering whether resources are needed for more tools to support debt management (such as data analytics, the single customer account, and online tools for setting up payment arrangements for business customers);
developing HMRC’s understanding of the effectiveness of the different tools and interventions that it already uses and how they interact, to help allocate resources in the most efficient way;
adopting best practices from the private sector and from HMRC’s own handling of debt during the pandemic on a permanent basis, and routinely signposting independent debt advice (including debt charities) to help reduce the burden on HMRC’s extra support team; and
raising awareness of HMRC’s powers to deal with companies which deliberately misuse the insolvency rules – to act as a deterrent against potential avoidance behaviour.
Commenting on the report, Dawn Register, Head of Tax Dispute Resolution at BDO, said: ‘With many Covid-19 support measures now withdrawn, there is likely to be a strong emphasis on collecting unpaid tax regardless of whether HMRC remains understaffed. A lack of resources could even result in more punitive action for non-compliance given that HMRC will be under pressure to resolve situations quickly.
‘The Government is investing £100m into HMRC to build up its Taxpayer Protection Taskforce to go after an estimated £5.2bn in pandemic support fraud but the current tax debt of £42bn dwarfs this figure, and it must be worth investing more in HMRC’s debt management service to collect that. In my experience, better service from HMRC’s debt team helps struggling businesses and individuals pay back more and faster, so it has to be a good investment for the Government in the long run.’
