Recommendations & Conclusions
20 items
2
Recommendation
Forty-Eighth Report - HMRC’s management…
Accepted
HMRC is not being ambitious enough in bringing down debt levels and securing the resources this will require. The longer a debt is left, the harder it is to collect. The increase in tax debt and the number of taxpayers in debt also increases HMRC’s debt management workload. We are …
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HMRC is not being ambitious enough in bringing down debt levels and securing the resources this will require. The longer a debt is left, the harder it is to collect. The increase in tax debt and the number of taxpayers in debt also increases HMRC’s debt management workload. We are concerned that a lack of appropriately trained HMRC staff will lead to more debt going unpaid. HMRC’s debt management team had made staff reductions before the pandemic to improve efficiency. Its planned recruitment in 2021–22 will only close the current shortfall in staffing of 300 FTE. HMRC makes limited use of private sector debt collection agencies to increase its capacity to work with specific customer groups. HMRC has additional funding over the next three years (of £40m, £60m and £90m) for “spend to raise” work but has not decided whether any of this will be used for debt recovery, despite this work bringing in at least £18 for every £1 spent. HMRC has been successful in securing additional funds from HM Treasury for time-limited recruitment, but we are concerned that the long-term uncertainty associated with this approach may prevent HMRC from planning effectively and protecting value for money. The Committee has raised this issue before on HMRC’s compliance work, which also offers high rates of return. 6 HMRC’s management of tax debt Recommendation: There is a clear value for money case to increase debt management capacity. HMRC should set out how much more tax debt it can bring in with increased levels of capacity using private sector and public sector options and write to the Committee alongside its Treasury Minute response with its findings and the actions it is taking to maximise value for money.
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Government response AI summary
The government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts, which will raise an additional £1.8 billion for the Exchequer between 2022-23 and 2024-25; HMRC is recruiting almost 2,000 debt …
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HM Treasury
3
Recommendation
Forty-Eighth Report - HMRC’s management…
Accepted
Rogue companies are exploiting the pandemic to profit at the expense of taxpayers. We are concerned that rogue firms have been able to exploit temporary restrictions on insolvency action and the availability of covid support grants and loans to embezzle large sums during the pandemic. In particular, there is an …
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Rogue companies are exploiting the pandemic to profit at the expense of taxpayers. We are concerned that rogue firms have been able to exploit temporary restrictions on insolvency action and the availability of covid support grants and loans to embezzle large sums during the pandemic. In particular, there is an increased risk from ‘phoenix’ companies (whereby individuals continue the same trade through a series of companies that are wound up, usually to avoid paying debts). While the NAO found that HMRC held no data on the scale of phoenix activity in the past, HMRC asserted that the number of such companies has not increased. It was not clear to us how it can be certain that this is the case, or how much taxpayer money is at risk, without management information. HMRC is developing a strategy to combat phoenix companies and is beginning to use new powers alongside its existing approaches to identify, and bring sanctions against, individuals involved in this practice. Recommendation: Alongside the Treasury Minute response to this report, HMRC should provide the Committee with a summary of substantive work it has undertaken to: • Estimate the number of rogue companies at risk of defaulting and the value of the tax at risk. • Ensure commensurate resources are in place to prevent such fraudulent activity. HMRC should be prepared to bring the full force of the law to bear on those who defraud the Exchequer, and report publicly and regularly to Parliament on the numbers prosecuted.
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Government response AI summary
HMRC has begun work to produce the first internal estimate of the scale and nature of risk posed by phoenixism by the end of May 2022, which will inform improvements in the department’s approach and resourcing decisions. HMRC is also improving its IT systems and …
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HM Treasury
5
Recommendation
Forty-Eighth Report - HMRC’s management…
Accepted
HMRC is not using all relevant data sources to understand how the pandemic is affecting taxpayer’s ability to repay. The pandemic has had a varied economic impact, with some groups improving their financial position during the pandemic while others have been negatively affected. HMRC used data it already held, on …
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HMRC is not using all relevant data sources to understand how the pandemic is affecting taxpayer’s ability to repay. The pandemic has had a varied economic impact, with some groups improving their financial position during the pandemic while others have been negatively affected. HMRC used data it already held, on business customers’ revenue, staffing and use of employment support schemes, to identify how severely they were affected by the pandemic. However, HMRC has not used business sector data – and does not plan to. We believe that sectoral data is likely to become more important over time as the pandemic continues to affect business sectors differently and, as government support schemes close, data about which customers accessed these schemes will be less informative about their current situation. HMRC told us that it does not wish to drive any viable business to the wall by pushing them to repay debt too quickly, but we cannot see how HMRC will be able to make informed judgements about how hard it chases customers without understanding the context in which they operate. Recommendation: HMRC should identify and obtain the data sources which are most relevant to understand the ongoing impact of the pandemic on businesses. As a minimum we would expect HMRC to make use of sectoral data.
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Government response AI summary
HMRC will combine its response with recommendation 4 and set out what data it is using, or planning to use, to assess ability to pay and why, and will re-assess the extent to which sectoral data adds value to its segmentation approach.
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HM Treasury
6
Recommendation
Forty-Eighth Report - HMRC’s management…
Accepted
We are concerned that HMRC is not doing enough to identify vulnerable people who need extra support with their debts. The pandemic has left more people in vulnerable positions, such as managing serious illness, bereavement and with low resilience to financial shocks. The Financial Conduct Authority has reported a 15% …
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We are concerned that HMRC is not doing enough to identify vulnerable people who need extra support with their debts. The pandemic has left more people in vulnerable positions, such as managing serious illness, bereavement and with low resilience to financial shocks. The Financial Conduct Authority has reported a 15% increase in the number of adults who met one of their characteristics of vulnerability. Yet HMRC has not seen an increase in the number of customers it identifies as being vulnerable. Around 1,400 customers currently access help from its Extra Support Team, a tiny fraction of the 6.2 million customers with tax debt. HMRC is adopting the vulnerability toolkit developed by the Cabinet Office to better identify vulnerable customers. However, we are concerned that, despite this, HMRC may be failing to identify vulnerable people, and that it may therefore fail to provide them with extra support because it doesn’t understand actual need. HMRC acknowledges that the number of vulnerable customers it has identified looks lower than it would expect and that the take-up of some of its offers of support, such as the Breathing Space scheme, is low. 8 HMRC’s management of tax debt Recommendation: HMRC should ensure regular and adequate training is in place for staff and it should carry out research to independently estimate how many vulnerable people are affected by tax debt and how effectively it is identifying those customers and write to us with its findings. HMRC’s management of tax debt 9 1 HMRC’s capacity and capability to manage increased tax debt
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Government response AI summary
HMRC will refine mandatory training and guidance to identify vulnerable people, improve identification and handling of contact from people with emotional and mental health issues, identify independent research to estimate how many people could potentially be eligible for extra support, and improve communications to raise …
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HM Treasury
7
Conclusion
Forty-Eighth Report - HMRC’s management…
Accepted
HMRC acknowledges that debts become harder to collect the longer you wait to collect them.16 We are concerned that HMRC does not have the level of staffing it needs to deal with its increased workload in a timely manner, and this will in turn mean more debt goes unpaid.17 In …
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HMRC acknowledges that debts become harder to collect the longer you wait to collect them.16 We are concerned that HMRC does not have the level of staffing it needs to deal with its increased workload in a timely manner, and this will in turn mean more debt goes unpaid.17 In March 2020, HMRC’s debt management team had 3,975 FTE staff. This followed a series of staff reductions over a number of years; at March 2014, HMRC had 4,857 staff in its debt management team.18 While HMRC is confident that it maintained performance with this reduced level of resources, we think it is hard to justify reducing the number of staff when HMRC has estimated that for each additional pound it spent on 9 C&AG’s Report, para 2.22 10 Qq 16–18 11 Qq 31, 84, 118; C&AG’s Report, para 13 12 Q33 13 Qq 29–31; C&AG’s Report, para 2.31 14 Qq 30–31 15 C&AG’s Report, para 2.19 and 3.8 to 3.10; Written evidence submitted by Jim Harra, Chief Executive and First Permanent Secretary of HMRC, dated 28 January 2022 16 Qq 31 17 Qq 61, 85–91; C&AG’s Report, para 3.9, 3.10 18 C&AG’s Report, para 3.11 HMRC’s management of tax debt 11 increasing its debt management staff capacity, it would collect an additional £18 of debt.19 Furthermore, there are indications that performance may not have been maintained. The NAO reported that HMRC wrote off more tax debt as uncollectable in the years running up to the pandemic. In 2018–19 and 2019–20 combined, HMRC wrote-off or remitted around £9.2 billion in tax debt, compared with a total of £8.4 billion in the previous two years.20
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Government response AI summary
The government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts, which will raise an additional £1.8 billion for the Exchequer between 2022-23 and 2024-25; HMRC is recruiting almost 2,000 debt …
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HM Treasury
8
Conclusion
Forty-Eighth Report - HMRC’s management…
Accepted
HMRC told us it was planning to recruit more than 1,000 debt management staff in 2021–22, but it was starting with a staffing shortfall. At September 2021, HMRC’s debt management team had 300 fewer FTE staff than it had planned. It was awarded additional funding for 600 FTE staff for …
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HMRC told us it was planning to recruit more than 1,000 debt management staff in 2021–22, but it was starting with a staffing shortfall. At September 2021, HMRC’s debt management team had 300 fewer FTE staff than it had planned. It was awarded additional funding for 600 FTE staff for three years at Budget 2020. HMRC believed the 1,000 new staff it recruits would only be sufficient to close the existing shortfall after taking account of staff who retire or resign.21
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Government response AI summary
The government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts, which will raise an additional £1.8 billion for the Exchequer between 2022-23 and 2024-25; HMRC is recruiting almost 2,000 debt …
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HM Treasury
9
Conclusion
Forty-Eighth Report - HMRC’s management…
Accepted
HMRC also told us that in the 2021 Spending Review HM Treasury awarded it additional funding of £40 million, £60 million and £90 million over the three years from 2022–23, to undertake “spend to raise” work. However, it could not tell us whether it would use this funding for additional …
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HMRC also told us that in the 2021 Spending Review HM Treasury awarded it additional funding of £40 million, £60 million and £90 million over the three years from 2022–23, to undertake “spend to raise” work. However, it could not tell us whether it would use this funding for additional debt management work, saying it was still discussing how the money would be used with HM Treasury.22 We think there is a strong value for money case for increasing investment in this area.23
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Government response AI summary
The government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts, which will raise an additional £1.8 billion for the Exchequer between 2022-23 and 2024-25; HMRC is recruiting almost 2,000 debt …
Read full response →
HM Treasury
10
Conclusion
Forty-Eighth Report - HMRC’s management…
Accepted
In the past HMRC has been successful in securing additional funds from HM Treasury for time-limited recruitment, for example the additional funding secured at Budget 2020. But HMRC acknowledged that it had to make the case to HM Treasury every time it requested additional funding for this type of recruitment. …
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In the past HMRC has been successful in securing additional funds from HM Treasury for time-limited recruitment, for example the additional funding secured at Budget 2020. But HMRC acknowledged that it had to make the case to HM Treasury every time it requested additional funding for this type of recruitment. Therefore, we do not see how HMRC can plan effectively for the long-term under this approach and are concerned that this uncertainty may prevent HMRC from protecting value for money, for example by being able to keep trained staff in the long term.24 The Committee has raised this issue before on HMRC’s compliance work, which also offers high rates of return. In our recent report on HMRC’s Annual accounts, we concluded that resource constraints were limiting HMRC’s ability to get the optimum level of compliance yield. We found that HMRC spent around £1.5 billion on enforcement and compliance activities in 2020–21 and generated a yield of £30.4 billion, and that HMRC’s data indicated that it would increase this yield if it spent more on compliance, particularly if it increased its activities to ensure large businesses complied with their tax obligations.25
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Government response AI summary
The government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts, which will raise an additional £1.8 billion for the Exchequer between 2022-23 and 2024-25; HMRC is recruiting almost 2,000 debt …
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HM Treasury
11
Recommendation
Forty-Eighth Report - HMRC’s management…
Accepted
In addition to its own debt management staff, HMRC also uses private sector debt collection agencies to increase its capacity and work with specific customer groups.26 HMRC works with these agencies through an arrangement called the ‘debt market integrator’, which is run by Indesser (a joint venture between the Government …
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In addition to its own debt management staff, HMRC also uses private sector debt collection agencies to increase its capacity and work with specific customer groups.26 HMRC works with these agencies through an arrangement called the ‘debt market integrator’, which is run by Indesser (a joint venture between the Government and TDX- Equifax). The agencies do not undertake field visits—they are limited to desk-based 19 Q 91; C&AG’s Report, para 3.24; Written evidence submitted by Jim Harra, Chief Executive and First Permanent Secretary of HMRC, dated 28 January 2022 20 C&AG’s Report, para 3.13 to 3.14 21 Qq 85–87; C&AG’s Report, para 3.10 22 Qq 90, 91 23 Q 91; C&AG’s Report, para 3.24; Written evidence submitted by Jim Harra, Chief Executive and First Permanent Secretary of HMRC, dated 28 January 2022 24 Qq 62, 120, 125, 129 25 Committee of Public Accounts, HMRC Annual accounts 2020–21, 37th Report of Session 2021–2022, HC 641, 11 February 2022 26 Qq 63, 64, 92 12 HMRC’s management of tax debt activity—and have collected £2.3 billion of tax debts since 2015; a return on investment of more than £18 for every £1 spent. HMRC currently has a budget of around £26 million per year to contract private sector agencies, and it expects agencies to collect almost £500 million of debt this year.27 27 Qq 63, 64, 92; C&AG’s Report, para 3.19 HMRC’s management of tax debt 13 2 HMRC’s use of data to manage increased tax debt HMRC’s use of data to manage taxpayers in debt
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Government response AI summary
Government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts and will increase placements with DCAs by around £1 billion a year without increasing the cost to the Exchequer.
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HM Treasury
12
Recommendation
Forty-Eighth Report - HMRC’s management…
Accepted
In 2008, the NAO recommended that HMRC develop its IT systems to effectively provide it with a single customer record or view, either through one new system or by making progressive changes that allowed it to link debts from different taxes.28 In 2009, following this recommendation, HMRC told our predecessor …
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In 2008, the NAO recommended that HMRC develop its IT systems to effectively provide it with a single customer record or view, either through one new system or by making progressive changes that allowed it to link debts from different taxes.28 In 2009, following this recommendation, HMRC told our predecessor committee that it could not afford the estimated £250 million to develop an IT system which automatically linked the different tax records of each taxpayer alongside its existing commitments. It was therefore planning to link VAT debts to its main debt management system, as the first step in an incremental approach.29 Thirteen years later, HMRC still records details for different taxes on different IT systems and has no straightforward way to combine or link them.30 It has identified some benefits it might realise if it could achieve a single customer view, such as ‘setting off’ credits against debts. HMRC also told us it had made advances towards a single customer record or account in recent years, citing the personal tax account and business tax account as examples of progress. HMRC has been awarded funding to make further progress over the next three years. It believed it would be able to link data for the major tax streams within three years but it would still not be able to link or view data across all types of tax at the end of this three-year period.31
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Government response AI summary
HMRC will write to the Committee with further information on Single Customer Account costs and target completion dates, explore opportunities to share data across government, and provide results of its pilot test using private sector data.
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HM Treasury
13
Conclusion
Forty-Eighth Report - HMRC’s management…
Accepted
HMRC also told us it is working with other government departments, under the leadership of the Cabinet Office debt management function, towards having a single view of all the debts individual customers owe to any government department. HMRC understood that the Cabinet Office was leading some trials to advance this …
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HMRC also told us it is working with other government departments, under the leadership of the Cabinet Office debt management function, towards having a single view of all the debts individual customers owe to any government department. HMRC understood that the Cabinet Office was leading some trials to advance this work and was exploring legal and legislative issues. However, HMRC told us it does not expect this to be achieved within the next three years and considered it a longer-term ambition.32
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Government response AI summary
Spending Review 2021 provided funding of £81.7 million for the Single Customer Account and £53.9 million for the Unique Customer Record; HMRC will explore opportunities to share data across government to improve its understanding of taxpayers' finances; and HMRC is trialling the use of credit …
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HM Treasury
14
Recommendation
Forty-Eighth Report - HMRC’s management…
Accepted
Historically, HMRC has made limited use of external data, but is currently trialling the use of credit data purchased from the private sector. HMRC told us that when it agrees a debt repayment plan with a customer (which it refers to as a ‘Time to Pay’ plan), it conducts a …
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Historically, HMRC has made limited use of external data, but is currently trialling the use of credit data purchased from the private sector. HMRC told us that when it agrees a debt repayment plan with a customer (which it refers to as a ‘Time to Pay’ plan), it conducts a structured conversation with the customer to identify all of their income and expenditure, including any other debts they are repaying. Alternatively, if the customer has a ‘single financial statement’ (a standard output used across the credit industry, created during a structured interview with a creditor), HMRC will also accept this statement as the basis for agreeing a Time to Pay plan.33 Until HMRC holds the structured conversation with the customer, it has no means of knowing whether that customer has other significant debts.34
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Government response AI summary
HMRC will write to the Committee with further information on Single Customer Account costs and target completion dates, explore opportunities to share data across government, and provide results of its pilot test using private sector data.
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HM Treasury
15
Recommendation
Forty-Eighth Report - HMRC’s management…
Accepted
HMRC does not typically use third-party information about customers’ other loans or debts—for example, customer credit scores—because of the cost of the information. 28 C&AG’s Report, Management of Tax Debt, Session 2007–08, HC 1152, 20 November 2008, para 8e 29 Committee of Public Accounts, Management of tax debt, Twenty-Sixth Report …
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HMRC does not typically use third-party information about customers’ other loans or debts—for example, customer credit scores—because of the cost of the information. 28 C&AG’s Report, Management of Tax Debt, Session 2007–08, HC 1152, 20 November 2008, para 8e 29 Committee of Public Accounts, Management of tax debt, Twenty-Sixth Report of Session 2008–09, HC 216, 9 June; para 3, 12 and 18 Qq 12; 97, 98 30 Qq 114, 121; C&AG’s Report, para 2.4 31 Qq 114, 121 32 Qq 83, 114 33 Qq 68, 75 34 Q 82; C&AG’s Report, para 2.15 14 HMRC’s management of tax debt It told us it may access credit information when it begins debt enforcement procedures against an individual customer, but it does not do this routinely or ‘at scale’.35 HMRC outsources some debt collection to private sector agencies, and these agencies do have access to credit data that identify other debts customers have.36 Although HMRC does not currently use credit information routinely, it said it was undertaking a trial to determine whether purchasing credit data would be cost effective in its own debt collection work.37
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Government response AI summary
HMRC will provide an update on spending for the single customer record, work with the rest of government to share data, and the results of its pilot test using private sector data in a letter to the Committee in December 2022.
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HM Treasury
16
Conclusion
Forty-Eighth Report - HMRC’s management…
Accepted
HMRC is also looking more widely at how it can improve the efficiency of its debt management operations. It told us it is undertaking work to use its data to better understand which type of contact is most effective in bringing customers to repay their debts and target activity accordingly. …
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HMRC is also looking more widely at how it can improve the efficiency of its debt management operations. It told us it is undertaking work to use its data to better understand which type of contact is most effective in bringing customers to repay their debts and target activity accordingly. For example, whether a particular customer is likely to respond positively to receiving letters or whether a field visit is likely to be required.38 HMRC’s use of data to understand how taxpayers were affected by the pandemic
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Government response AI summary
HMRC will re-assess the value of sectoral data in its segmentation approach by December 2022, while also combining its response with recommendation 4 to set out what data it is using to assess the taxpayer's ability to pay.
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HM Treasury
19
Conclusion
Forty-Eighth Report - HMRC’s management…
Accepted
Nonetheless, the pandemic continues to affect business sectors differently.47 For example, with the Bounce Back Loan scheme there was considerable variation between industry sectors, both in their borrowing of Bounce Back Loans and in how their borrowing patterns had changed relative to other sectors since the pandemic.48 But HMRC’s segmentation …
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Nonetheless, the pandemic continues to affect business sectors differently.47 For example, with the Bounce Back Loan scheme there was considerable variation between industry sectors, both in their borrowing of Bounce Back Loans and in how their borrowing patterns had changed relative to other sectors since the pandemic.48 But HMRC’s segmentation of its customers does not include data on whether they accessed a Bounce Back Loan.49 As government support schemes close, data about which customers accessed these schemes will be less relevant to their current situation, while sector data may still be relevant.50 46 Qq 55–57 47 Qq 42, 54–58; C&AG’s Report, para 2.8, 2.13, 2.14 48 C&AG’s Report, The Bounce Back Loan Scheme: an update, Session 2021–22, HC 861, 3 December 2021, para 1.5, Figure 5 49 Q 84; C&AG’s Report, para 2.13 50 Qq 42, 54–58; C&AG’s Report, para 2.8, 2.13, 2.14 16 HMRC’s management of tax debt 3 Supporting vulnerable customers and managing rogue businesses Vulnerable customers
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Government response AI summary
HMRC will re-assess the value of sectoral data in its segmentation approach by December 2022, while also combining its response with recommendation 4 to set out what data it is using to assess the taxpayer's ability to pay.
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HM Treasury
20
Recommendation
Forty-Eighth Report - HMRC’s management…
Accepted
The pandemic has left more people in vulnerable positions, managing debt alongside other problems such as serious illness, bereavement and low resilience to financial shocks. The Financial Conduct Authority reported a 15% increase in the number of adults who met one of its characteristics of vulnerability between March 2020 and …
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The pandemic has left more people in vulnerable positions, managing debt alongside other problems such as serious illness, bereavement and low resilience to financial shocks. The Financial Conduct Authority reported a 15% increase in the number of adults who met one of its characteristics of vulnerability between March 2020 and October 2020.51
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Government response AI summary
HMRC will refine training and guidance to identify people who need extra support, explore opportunities to improve identification and handling of contact from people with emotional and mental health issues, and identify independent research to estimate how many people could potentially be eligible for extra …
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HM Treasury
21
Conclusion
Forty-Eighth Report - HMRC’s management…
Accepted
Despite this, and despite managing an additional 2.4 million customers with debt, HMRC told us it has not seen an increase in the number of customers it identifies as being vulnerable, demonstrated by the steady rate of customers its staff have referred to its Extra Support Team.52 HMRC told us …
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Despite this, and despite managing an additional 2.4 million customers with debt, HMRC told us it has not seen an increase in the number of customers it identifies as being vulnerable, demonstrated by the steady rate of customers its staff have referred to its Extra Support Team.52 HMRC told us around 1,400 customers currently access help from its Extra Support Team. This is a tiny fraction of the 6.2 million customers with tax debt.53 It also compares poorly with numbers before the pandemic, when debt management specialists in HMRC’s Extra Support Team saw their caseload more than double, from 1,149 cases in 2017–18 to 2,867 cases in 2019–20.54
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Government response AI summary
HMRC will refine its training and guidance for staff to identify vulnerable people, work with the voluntary sector to improve identification, identify independent research to estimate eligibility for extra support, and continue to review take-up of the Extra Support Team by December 2022.
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HM Treasury
24
Recommendation
Forty-Eighth Report - HMRC’s management…
Accepted
The pandemic has created a risk that some rogue firms have been able to embezzle large sums of money during the pandemic. There is a particular risk from so-called ‘phoenix’ companies, referring to the practice of individuals continuing the same trade after winding up a company, usually to avoid paying …
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The pandemic has created a risk that some rogue firms have been able to embezzle large sums of money during the pandemic. There is a particular risk from so-called ‘phoenix’ companies, referring to the practice of individuals continuing the same trade after winding up a company, usually to avoid paying debts.58 The pandemic has presented companies with the opportunity to borrow more money from government through schemes such as Bounce Back Loans or Coronavirus Business Interruption Loans.59 And the temporary restrictions on insolvency action means that companies are able to continue building up debt for a longer period of time before action is taken. This means that a phoenix company might build up far larger debts than it would have been able to prior to the pandemic, before its directors liquidate the company.60
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Government response AI summary
HMRC has begun work to produce the first internal estimate of the scale and nature of risk posed by phoenixism, will improve IT systems, and is using enhanced powers to hold company directors liable for some debts.
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HM Treasury
25
Conclusion
Forty-Eighth Report - HMRC’s management…
Accepted
The NAO reported there was an increased risk from phoenix companies during the pandemic but found that HMRC did not hold data on the scale of phoenix activity (in terms of the number of companies or the financial value involved) and therefore could not monitor the changed risk. HMRC was …
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The NAO reported there was an increased risk from phoenix companies during the pandemic but found that HMRC did not hold data on the scale of phoenix activity (in terms of the number of companies or the financial value involved) and therefore could not monitor the changed risk. HMRC was not able to estimate the value of tax debt that was currently at risk.61 HMRC told us it didn’t think there was necessarily an increase in phoenix companies, but that the phoenix companies that did exist may embezzle larger sums.62 We do not see how it can be confident in this assessment without historic and current data.
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Government response AI summary
HMRC has begun work to produce the first internal estimate of the scale and nature of risk posed by phoenixism, is improving its IT systems aimed at managing insolvency compliance risks, and will use enhanced powers to hold company directors liable for some debts owed …
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HM Treasury
26
Conclusion
Forty-Eighth Report - HMRC’s management…
Accepted
HMRC told us it is developing a strategy to combat phoenix companies and is beginning to use new powers alongside existing approaches to identify, and bring sanctions against, individuals involved in this practice.63 The key tools it uses include: being able to attach company debts to the individuals who served …
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HMRC told us it is developing a strategy to combat phoenix companies and is beginning to use new powers alongside existing approaches to identify, and bring sanctions against, individuals involved in this practice.63 The key tools it uses include: being able to attach company debts to the individuals who served as directors; referring directors to the Insolvency Service for potential disqualification; and requiring financial securities up front from new businesses that are created as the successor of an old business.64 HMRC said it is keeping track of individuals who are potentially involved in phoenix activity (as indicated by their moving from company to company) and that this includes efforts to identify and track the ‘controlling mind’, not just the named officers, of the company.65 It told us it is identifying the insolvency practitioners that phoenix companies prefer to use, and replacing them with more stringent practitioners.66
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Government response AI summary
HMRC has begun work to produce an internal estimate of the risk posed by phoenixism by the end of May 2022 to improve the department's approach to identifying and mitigating this risk, as well as aid in resourcing decisions.
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HM Treasury