Fears that a growing number of individuals and businesses will struggle to meet tax demands will be ignited by the National Audit Office’s finding that the number of tax debts increased by 22 per cent to 15.8m over the last year.
The NAO also called on Revenue to “explore the benefits and risks of obtaining a power to recover tax debts from taxpayers’ salaries or bank accounts without a court order”.
Just over £1bn ($1.5bn) was recovered last year by Revenue’s enforcement and insolvency service, which threatens debtors with bankruptcy or insolvency when other avenues have been exhausted. Although the department recovers most of the debt when bankruptcy action prompts the taxpayer to settle, it only secures an average of four pence for every £1 of debt through bankruptcy.
Edward Leigh, chairman of the parliamentary public accounts committee, commented that the NAO report raised “fundamental” questions about how Revenue would maintain the flow of money to the exchequer and identify and support poor and vulnerable people who needed time to pay.
He accused Revenue & Customs of failing to adopt debt management techniques used by other organisations. “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.”
The NAO highlighted improvements in Revenue’s management of tax debts, however, saying that such debt as a proportion of net tax receipts fell to 3.8 per cent in 2007-08, compared with 4.3 per cent in 2005-06. The department’s tax debt as a percentage of receipts is relatively low by international standards.
One reason for the increase in the overall number of tax debts was a decision by Revenue to focus more on higher value debts as it has sought to cope with 14 per cent fewer staff in the debt-collecting division since 2006. The increase may also reflect how debts are recorded, an increase in the number of taxpayers and a doubling of consumer debt over the last seven years.
The biggest area of tax debt is pay-as-you-earn, which accounts for 32 per cent of the total.
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