Growing Numbers Avoiding Or Delaying Paying Tax

New report estimates up to 1.5 million working adults had personal or business tax debt in April this year

Growing numbers of people and businesses are avoiding or delaying paying taxes as the "credit crunch" bites, the National Audit Office says in a new report.

The increase comes against the background of a doubling of consumer debt leading to people avoiding paying their tax bills, says the report.

The auditors estimate that up to 1.5 million working adults had a personal or business tax debt in April this year - and expect the figure to rise. The total number of debts has already risen by 22% over the last year - from 13 million to 15.8 million.

Pay-as-you-earn receipts accounted for 32% of the debt, VAT accounted for 27% and self-assessed money/incometax">income tax for 21%.

The report, published yesterday, warns that HM Revenue and Customs is unprepared to tackle the problem, having cut its number of staff handling debt by 14% to 6,200 since 2006.

Revenue & Customs has also decided to target the largest sums owed to the tax authorities regardless of whether there is any prospect of getting the cash. As a result many of the smaller debts are not being chased up, which has led to the big jump in numbers in debt to the department.

The auditors criticise Revenue & Customs for ignoring recommendations made by MPs on the Commons public accounts committee four years ago. It has not, as MPs suggested, introduced risk profiles on taxpayers to target those who could be bad payers and tailored debt collection to get the money.

It also has no measurements of how long it is taking to recover debts or the best methods of doing so. It has implemented some recommendations, including allowing people to pay by direct debit and credit card, and providing more information to debtors.

But it is concentrating on getting more legal powers to pursue debtors while planning further cuts in staff by 2011 to save another £217m. Other activities have been given priority.

Edward Leigh, the chairman of the Commons public accounts committee, said: "HMRC has failed to adopt key techniques used by other organisations to improve how they manage debts owed to them. If the department had introduced such measures, then it would be better placed to tackle what will surely become a more pressing problem in the present economic climate.

"It is difficult not to ask some fundamental questions. How will HMRC manage what is very likely to be a growing volume of tax debt? How will the department maintain the flow of money to the exchequer? And how will HMRC identify and support those poor and vulnerable people owing tax who need time to pay?"

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