2.4 million more people owe HMRC taxes than in early 2020, watchdog says

Tax debt is more than double its pre-pandemic level and up to 2.4 million additional taxpayers are in debt to HM Revenue and Customs (HMRC), according to an expenditure watchdog.

Staff levels at HM Revenue and Customs (HMRC) are unlikely to be sufficient to handle the increased workload, with years of tax debt to come that are potentially much higher than usual, the National Audit Office said. (NAO).

As the UK emerges from the pandemic, HMRC will need to strike a balance between pursuing tax debt while giving taxpayers time to recover their finances, he added.

The tax authorities suspended most debt collection activities when the UK was blocked in March 2020. To support businesses and individuals, self-assessment VAT and income tax payments were also deferred.

Tax debt swelled by £ 26 billion between January 2020 and September 2021.

Some £ 42bn was owed to HMRC in September 2021, up from £ 16bn in January 2020.

Total tax debt peaked at £ 67bn in August 2020, with some debt being paid off as the economy reopens and VAT and self-assessment extensions.

“HMRC still faces a significant challenge in clearing the backlog,” the report said.

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The HMRC has prioritized the debts to be chased based on the likely impact of the pandemic on the ability to pay.

The tax administration anticipates that it will have double the usual level of debt to manage by the end of March 2022.

He predicts that total tax debt will decline to £ 33 billion by March 2022, but that assumes the pandemic has not changed repayment behavior, according to the NAO.

He said up to an additional 2.4 million taxpayers are in debt to HMRC, comparing September 2021 to January 2020.

The average amount owed by taxpayers has risen to £ 6,800. Older debts, often more difficult to collect, have fallen from £ 2.5bn in 2019-2020 to £ 4.4bn in 2020-2021.

The HMRC has prioritized the debts to be chased based on the likely impact of the pandemic on the ability to pay.

However, those whose ability to pay was considered the least affected often had larger debts, the NAO said.

Tax debts are normally supposed to be written off before the next fiscal period, but this may be unrealistic for many of those affected by the pandemic and HMRC has made it easier for taxpayers to make longer repayment arrangements.

The average duration of repayment plans has increased from around five months before the pandemic to 12 months in July 2021, the NAO said.

Efficiency efforts enabled HMRC to reduce the number of staff working on debt management by 18% between March 2014 and March 2020.

It has kept its debt collection rate at about two-thirds of new debt created each year – suggesting it could have done more with greater capacity – the NAO said.

He added that HMRC is unlikely to have enough staff to handle the increase in tax debt caused by the pandemic.

HMRC intends to recruit 1,000 full-time staff in 2021-2022. However, he told the NAO that once staff turnover is factored in, it will only solve current staff shortages.

The NAO said HMRC should develop a revised strategy to collect tax debt, which would take into account the varying impacts of the pandemic on different taxpayers, and identify those who are most able to pay and those who are most severely. affected.

Gareth Davies, the head of the NAO, said: “HMRC faces several years of managing a much higher level of tax debt than it has seen in recent times, due to the Covid pandemic -19.

“Some debtors have already been able to repay their tax debt quickly, but an unknown number of taxpayers have been hit hard and will struggle to do so. HMRC must significantly increase its capacity if it is to cope with the changed scale and nature of the challenge.

Dame Meg Hillier, Chairman of the Public Accounts Committee, said: “Covid-19 has skyrocketed unpaid taxes, which HMRC must now try to recover.

“However, the pandemic had a polarizing effect on the taxpayer, with some bolstering their bank balances while others struggled to make ends meet.

“HMRC now faces a careful balancing act. It must quickly recover unpaid taxes from those who can afford it, while supporting those who have difficulty paying. “

A spokesperson for HMRC said: “As acknowledged in the NAO report, we have supported businesses and individuals throughout the pandemic, through debt support such as payment delay and payments. VAT deferrals, and this inevitably had an impact on the debt balance.

“The debt balance is declining as the economy recovers and we are reconnecting with clients to understand their situation and agree on payment term arrangements where appropriate – and we expect it to continue to decline.” .

“We have taken and will continue to take a comprehensive and united approach to dealing with those who are in tax debt or who are concerned about their ability to pay their taxes.”

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