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‘Understaffed HMRC’ struggling to collect unpaid taxes

‘Understaffed HMRC’ struggling to collect unpaid taxes
HMRC has a shortfall of 300 debt management staff and is struggling to recover the £42bn owed by 6.2m taxpayers in debt as of 30 September 2021, according to the National Audit Office (NAO).
The NAO has published a report called ‘Managing tax debt through the pandemic’, assessing how HMRC is dealing with a significant rise in outstanding amounts of unpaid tax.
It says that total tax debt increased from £16bn in January 2020 to £67bn in August 2020, before falling to £42bn in September 2021 – more than double the level going into the pandemic.
According to the ICAEW, a significant amount of the increase was driven by the government deciding to allow taxpayers to defer VAT and self assessment payments as part of its overall response to the pandemic.
It said the figures also reflect a change in debt management approach in the early stages of the pandemic, with HMRC pausing debt collection activity, moving staff over to helping businesses and individuals apply for furlough payments, and extending access to online repayment tools allowing taxpayers to schedule tax payments over longer periods.
Key findings by the NAO include:

  • HMRC maintained telephone and postal services but could not cope with demand.
  • The number of taxpayers in debt has increased by 2.4m from 3.8m in January 2020 to 6.2m in September 2021.
  • HMRC has tried to target recovery efforts to those who can afford to pay, but the use of high, medium and low-impact categories of those affected by the pandemic does not fully reflect the financial circumstances faced by those in debt.
  • It is unrealistic to expect taxpayers to be able to clear their debt before the next tax period and HMRC should change its self-serve system to permit taxpayers to spread the amounts they owe over longer periods without going into formal debt recovery procedures.
  • The current forecast for tax debt to fall to £33bn by 31 March 2022 assumes the pandemic has not changed taxpayer behaviour and the NAO believes it is possible higher levels of tax debt may persist for some time.
  • HMRC is understaffed.
  • HMRC has made efficiency gains in recent years, but debt write-offs over 2018-19 and 2019-20 were £1bn higher than for the previous two years.
  • HMRC lacks sufficient detailed understanding to be able to optimise debt collection and needs to improve its analysis of the effectiveness of different debt management activities.
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