2 November 2010
Titles that covered this article include the Sunday Times, 31st October 2010, and the Daily Telegraph, 1st November 2010.
- Concerns that it may lead to more aggressive debt collection tactics in the future against individuals and businesses.
The amount of money owed to the taxman, that HM Revenue and Customs (HMRC) no longer thinks it will recover, has jumped by 40% in the last 12 months*, from £4,557million to £6,367million.
Roy Maugham, tax partner in our London office says: “The Treasury is very hungry for cash at the moment – they have a huge hole in the Government’s finances to fill. Our concern is this is all going to lead to much more aggressive debt collection tactics in the future against both individuals and businesses.”
HMRC recently started engaging private sector bailiffs to pursue debts.
The increase in bad debts has been caused by the recession forcing more businesses to keep hold of money they should pay in taxes in order to pay other bills and keep afloat.
Roy explains: “A lot of businesses will have felt they had no choice but to put off paying HMRC. Unfortunately, many of those businesses will have lost that battle to keep trading, leaving HMRC out of pocket.”
Roy says that one area where HMRC may have built up unnecessary bad debts was in the early days of the “Time to Pay” scheme.
“Time to pay” allows businesses to defer tax payments during the recession.
Explains Roy: “In the panic following the collapse of Lehman Brothers very generous terms were offered under the “time to pay” scheme and that may have led to HMRC extending credit to businesses they should not have.”
“If HMRC has piled up bad debts with its early “time to pay” arrangements then that might explain why they are overcompensating in the other direction by choking off the “time to pay” scheme.”
Roy says that one real area of concern is the huge 78% jump in the amount of National Insurance (NI) payments that HMRC has written off which have risen from £516 million to £920million in the last year.
Roy says that where a business goes bankrupt owing NI payments for employees then the Government tops up their NI credits.
Says Roy: “That is a double whammy for taxpayers – they lose the NI payments coming in and then the Government tops up the NI “fund” on behalf of the employee.”
“HMRC really needs to keep an eye on this area.”
Some of HMRC debts become bad debts as they become too old to pursue.
Roy says: “A lot of HMRC’s bad debts have built up as they have become time-barred. It is thought that when HMRC changed their internal systems they temporarily lost track of payments in the process and then were forced to abandon problematic payments that weren’t picked up in time. You are seeing the results now.”
HMRC claims that £29million of the NI debts can no longer be collected because they are six years or older and have become time barred.
*Year to March 31 2010 - based on HMRC’s accounts
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