We reported last year on the National Audit Office’s (NAO) report on HMRC management of tax debt, which outlined a number of areas for improvement. The report was examined by the Public Accounts Committee (PAC) who have today published their own report and recommendations.
The PAC report
Sorting the sheep from the goats
The opening summary of the PAC report unfortunately neglects to mention that financial difficulty is a key reason for failing to pay tax on time, by stating:
'Debts arise when people or businesses forget to pay, do not understand the need to pay, or deliberately try to avoid or delay payment.'
Fortunately, the report goes on to explain that HMRC's failure to risk profile debt prevents them from being able to distinguish between those that won't pay and those that simply can't. It therefore recommends that risk profiling should be adopted for ‘all the main types of tax debt’. As we noted in our response to the NAO report, this could mean a better service for the most vulnerable of HMRC’s customers by helping them to, for example:
- Depart from automated and standard processes where they are unsuitable for use in individual cases; and
- Train staff to deal sympathetically with customers in debt, taking into account special needs or individual circumstances.
Bringing HMRC practices up-to-date
The report also recommends that HMRC:
- ‘should do more to exploit developments in payment technology’; and
- ‘needs a staged programme so that progressively it can link and manage all of a taxpayer’s debts as a whole.’
These recommendations chime with our responses to HMRC's debt consultation documents in which we try to encourage them to be more flexible about collecting debt, and query whether their systems are adequate to support their aims.
Cost versus recovery
We also support the recommendation that HMRC:
‘should introduce activity-based costing so that it can assess the relative success of collection activities, as well as the effect of changes in their scale and organisation.’
This supports our argument that a pragmatic approach must be taken where, for example, it is clear that pursuing a benefits claimant to an expensive court case will result in considerable strain on the claimant (and cost to the Exchequer) for negligible yield.
Time to pay
The report welcomes the Business Payment Support Service launched by HMRC in November 2008 which has helped many businesses negotiate ‘time to pay’. But what about support for individuals? In our response to HMRC’s recent consultation, we expressed concern about the lack of focus on non-business taxpayers and raising their awareness of the ability to ask for time to pay.
What’s missing from the report
Prevention is better than a cure
It is unfortunate that, whilst acknowledging in the opening paragraph that debts can arise when taxpayers ‘do not understand the need to pay’, the report does not make any recommendations as to taxpayer education which could prevent debt arising.
In this regard, HMRC must concentrate on better taxpayer education in ways that are relevant to the taxpayer. For example, dumping material on a website does not equal communication, particularly for those 17 milllion adults in the UK said to be digitally excluded.
We also think the report should have acknowledged that taxpayers sometimes get into tax debt due to HMRC’s mistakes or failed processes which lead to an underpayment.
Our recommendation following the NAO report was that unexpected debts must be prevented from arising in the first place – for example by HMRC improving their systems to ensure that they use information in their possession to adjust PAYE codes promptly and accurately.
And finally, are you struggling to pay your tax?
Ask for help
If you need more time to pay your tax, you should contact HMRC sooner rather than later to discuss the problem. Guidance is offered on the TaxAid website and on HMRC’s website. Older people on low incomes who need help with tax matters can contact TaxHelp for Older People for advice.
Have you been contacted by a debt collection agency about a tax debt?
We know that HMRC are in the process of making changes to their debt recovery processes, one of which is a pilot to use external debt collection agencies. TaxAid, a charity which specialises in helping low-income taxpayers who are in tax debt, gave further details of this pilot on their website last month, highlighting what to do if your tax debt is passed to an external agency.
Contact: Kelly Sizer (0844 579 6700 Fax 0844 579 6701)