Source · Select Committees · Public Accounts Committee
Forty-Eighth Report - HMRC’s management of tax debt
Public Accounts Committee
HC 953
Published 26 March 2022
Recommendations
2
HMRC is not being ambitious enough in bringing down debt levels and securing the resources...
Recommendation
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 …
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HM Treasury
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Conclusions (26)
3
Conclusion
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 …
4
Conclusion
HMRC is far behind where it needs to be in making good use of data to manage debt effectively. Over a decade ago, in 2009, HMRC told our predecessor committee that it planned to take an incremental approach to gradually link debts in different IT systems. This would create a …
5
Conclusion
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 …
6
Conclusion
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% …
1
Conclusion
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Revenue & Customs (HMRC) on the issue of its management of tax debt.1
7
Conclusion
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 …
8
Conclusion
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 …
9
Conclusion
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 …
10
Conclusion
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. …
11
Conclusion
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 …
12
Conclusion
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 …
13
Conclusion
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 …
14
Conclusion
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 …
15
Conclusion
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 …
16
Conclusion
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. …
17
Conclusion
HMRC told us that it does not wish to drive any viable business to the wall by pushing them to repay debt too quickly.39 Therefore, during the pandemic, it began using data it already holds on customers to inform how urgently it pursues them. Specifically, it uses data on business …
18
Conclusion
There is evidence that the pandemic has had a varied economic impact, with some businesses and individuals improving their financial position during the pandemic while others have been negatively affected.42 For example, companies in the hospitality sector have often been negatively impacted.43 However, HMRC has not—and does not plan to— …
19
Conclusion
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 …
20
Conclusion
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 …
21
Conclusion
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 …
22
Conclusion
HMRC suggested that the number of customers its staff refer to the Extra Support Team may have remained stable because the wider changes it has made to its debt management approach, in particular taking a more empathetic tone with customers, has meant the need for extra support has not increased. …
23
Conclusion
Nonetheless, HMRC acknowledged that the number of vulnerable customers it has identified is 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 (Breathing Space is the government’s Debt Respite Scheme, by which HMRC abides. It …
24
Conclusion
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 …
25
Conclusion
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 …
26
Conclusion
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 …
27
Conclusion
Phoenix companies are not the only type of rogue company HMRC takes action against. It also told us about its work to prevent criminals impersonating HMRC to defraud members of the public. HMRC said it was previously one of the most impersonated organisations, but its recent work in this area …