Forty-Eighth Report - HMRC’s management of tax debt

Select Committee

Public Accounts Committee HC 953 26 March 2022

Report Status Government responded

Conclusions & Recommendations 27 items (15 recs)

Source View on Parliament website

Government Response (AI assessment · 27 of 27 classified)

Accepted 20

Accepted in Part 2

Not Addressed 3

Recommendations

15 results

2 Accepted

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 … Read more

Government Response Summary

The government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts, which will raise an additional £1.8 billion for the Exchequer between 2022-23 and 2024-25; HMRC is recruiting almost 2,000 debt collection staff in 2022-23; and there will be a new contract through which HMRC places debt with private debt collection agencies (DCAs).

HM Treasury

3 Accepted

Rogue companies are exploiting the pandemic to profit at the expense of taxpayers.

Recommendation

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 … Read more

Government Response Summary

HMRC has begun work to produce the first internal estimate of the scale and nature of risk posed by phoenixism by the end of May 2022, which will inform improvements in the department’s approach and resourcing decisions. HMRC is also improving its IT systems and will use powers from Schedule 13 and Schedule 16 of Finance Act 2020.

HM Treasury

4 Not Addressed

HMRC is far behind where it needs to be in making good use of data...

Recommendation

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 … Read more

Government Response Summary

This response discusses elective and cancer treatment waiting times, which is unrelated to the recommendation about HMRC's use of data to manage debt.

HM Treasury

5 Accepted

HMRC is not using all relevant data sources to understand how the pandemic is affecting...

Recommendation

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 … Read more

Government Response Summary

HMRC will combine its response with recommendation 4 and set out what data it is using, or planning to use, to assess ability to pay and why, and will re-assess the extent to which sectoral data adds value to its segmentation approach.

HM Treasury

6 Accepted

We are concerned that HMRC is not doing enough to identify vulnerable people who need...

Recommendation

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 … Read more

Government Response Summary

HMRC will refine mandatory training and guidance to identify vulnerable people, improve identification and handling of contact from people with emotional and mental health issues, identify independent research to estimate how many people could potentially be eligible for extra support, and improve communications to raise awareness of the Extra Support Team.

HM Treasury

11 Accepted

In addition to its own debt management staff, HMRC also uses private sector debt collection...

Recommendation

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 … Read more

Government Response Summary

Government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts and will increase placements with DCAs by around £1 billion a year without increasing the cost to the Exchequer.

HM Treasury

12 Accepted

In 2008, the NAO recommended that HMRC develop its IT systems to effectively provide it...

Recommendation

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 … Read more

Government Response Summary

HMRC will write to the Committee with further information on Single Customer Account costs and target completion dates, explore opportunities to share data across government, and provide results of its pilot test using private sector data.

HM Treasury

14 Accepted

Historically, HMRC has made limited use of external data, but is currently trialling the use...

Recommendation

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 … Read more

Government Response Summary

HMRC will write to the Committee with further information on Single Customer Account costs and target completion dates, explore opportunities to share data across government, and provide results of its pilot test using private sector data.

HM Treasury

15 Accepted

HMRC does not typically use third-party information about customers’ other loans or debts—for example, customer...

Recommendation

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 … Read more

Government Response Summary

HMRC will provide an update on spending for the single customer record, work with the rest of government to share data, and the results of its pilot test using private sector data in a letter to the Committee in December 2022.

HM Treasury

17 Accepted in Part

HMRC told us that it does not wish to drive any viable business to the...

Recommendation

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 … Read more

Government Response Summary

HMRC will re-assess the extent to which sectoral data adds value to its segmentation approach, but previous analysis has shown that it is less effective than business-specific data.

HM Treasury

18 Accepted in Part

There is evidence that the pandemic has had a varied economic impact, with some businesses...

Recommendation

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 … Read more

Government Response Summary

HMRC will re-assess the extent to which sectoral data adds value to its segmentation approach, but previous analysis has shown that it is less effective than business-specific data.

HM Treasury

20 Accepted

The pandemic has left more people in vulnerable positions, managing debt alongside other problems such...

Recommendation

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 … Read more

Government Response Summary

HMRC will refine training and guidance to identify people who need extra support, explore opportunities to improve identification and handling of contact from people with emotional and mental health issues, and identify independent research to estimate how many people could potentially be eligible for extra support.

HM Treasury

23 Acknowledged

Nonetheless, HMRC acknowledged that the number of vulnerable customers it has identified is lower than...

Recommendation

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 … Read more

Government Response Summary

HMRC will identify independent research to help estimate how many people could potentially be eligible for extra support, and improve communications to raise awareness of the Extra Support Team.

HM Treasury

24 Accepted

The pandemic has created a risk that some rogue firms have been able to embezzle...

Recommendation

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 … Read more

Government Response Summary

HMRC has begun work to produce the first internal estimate of the scale and nature of risk posed by phoenixism, will improve IT systems, and is using enhanced powers to hold company directors liable for some debts.

HM Treasury

27 Acknowledged

Phoenix companies are not the only type of rogue company HMRC takes action against.

Recommendation

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 … Read more

Government Response Summary

HMRC is always prepared to bring the full force of the law to bear where appropriate, collaborates with The Insolvency Service, and will explore options to publish information about its performance on responding to those involved in phoenixism.

HM Treasury

Conclusions (12) Observations and findings — click to expand

1 Conclusion Not Addressed

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

Government Response Summary

The government's response is a restatement of the context, acknowledging the report and the evidence taken, but it does not address the substance of the conclusion itself.

7 Conclusion Accepted

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 …

Government Response Summary

The government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts, which will raise an additional £1.8 billion for the Exchequer between 2022-23 and 2024-25; HMRC is recruiting almost 2,000 debt collection staff in 2022-23; and there will be a new contract through which HMRC places debt with private debt collection agencies (DCAs).

8 Conclusion Accepted

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 …

Government Response Summary

The government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts, which will raise an additional £1.8 billion for the Exchequer between 2022-23 and 2024-25; HMRC is recruiting almost 2,000 debt collection staff in 2022-23; and there will be a new contract through which HMRC places debt with private debt collection agencies (DCAs).

9 Conclusion Accepted

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 …

Government Response Summary

The government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts, which will raise an additional £1.8 billion for the Exchequer between 2022-23 and 2024-25; HMRC is recruiting almost 2,000 debt collection staff in 2022-23; and there will be a new contract through which HMRC places debt with private debt collection agencies (DCAs).

10 Conclusion Accepted

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. …

Government Response Summary

The government announced an additional £62 million over three years to fund additional staff in HMRC to help people and businesses pay their tax debts, which will raise an additional £1.8 billion for the Exchequer between 2022-23 and 2024-25; HMRC is recruiting almost 2,000 debt collection staff in 2022-23; and there will be a new contract through which HMRC places debt with private debt collection agencies (DCAs).

13 Conclusion Accepted

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 …

Government Response Summary

Spending Review 2021 provided funding of £81.7 million for the Single Customer Account and £53.9 million for the Unique Customer Record; HMRC will explore opportunities to share data across government to improve its understanding of taxpayers' finances; and HMRC is trialling the use of credit reference agency data to test whether the additional insight improves overall understanding of an individual’s ability to pay their tax liabilities.

16 Conclusion Accepted

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. …

Government Response Summary

HMRC will re-assess the value of sectoral data in its segmentation approach by December 2022, while also combining its response with recommendation 4 to set out what data it is using to assess the taxpayer's ability to pay.

19 Conclusion Accepted

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 …

Government Response Summary

HMRC will re-assess the value of sectoral data in its segmentation approach by December 2022, while also combining its response with recommendation 4 to set out what data it is using to assess the taxpayer's ability to pay.

21 Conclusion Accepted

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 …

Government Response Summary

HMRC will refine its training and guidance for staff to identify vulnerable people, work with the voluntary sector to improve identification, identify independent research to estimate eligibility for extra support, and continue to review take-up of the Extra Support Team by December 2022.

22 Conclusion Not Addressed

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. …

Government Response Summary

The government's response repeats the response to recommendation 6, which focuses on training and research for identifying vulnerable people, but does not address the initial conclusion about HMRC's suggestions regarding stable referral numbers and the role of accountants.

25 Conclusion Accepted

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 …

Government Response Summary

HMRC has begun work to produce the first internal estimate of the scale and nature of risk posed by phoenixism, is improving its IT systems aimed at managing insolvency compliance risks, and will use enhanced powers to hold company directors liable for some debts owed to HMRC by their companies in specified circumstances.

26 Conclusion Accepted

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 …

Government Response Summary

HMRC has begun work to produce an internal estimate of the risk posed by phoenixism by the end of May 2022 to improve the department's approach to identifying and mitigating this risk, as well as aid in resourcing decisions.