Press Release - The Recovery of Debt by the Inland
Revenue
24 March 2004
According to a report today by the head of the National Audit
Office, Sir John Bourn, the Inland Revenue have improved the way
they recover debts in recent years but they could make further
improvements to reduce debts owed by taxpayers. The Inland Revenue
collected £219 billion in tax and National Insurance Contributions
in 2002-03. At the end of March 2003 debts totalled £14 billion,
although the total fluctuates throughout the year because of
various statutory deadlines for paying different taxes. A
significant proportion of this debt was owed by insolvent
businesses and by taxpayers who could not be traced, or was under
negotiation or being paid off under instalment arrangements.
The Inland Revenue have systems for collecting debts which match
the best used by other tax authorities. In 2001 they brought
together all debt management functions into a single business unit
to pursue debts more consistently and efficiently. They also set up
a Telephone Centre to make initial contact with taxpayers to
recover a debt because this can be more cost effective than
enforcement methods such as court action. The Department recognise
that they could make better use of the Telephone Centre by routing
more types of debt through it. Debts totalling £3 billion are
currently handled by more expensive methods. The report also
recommends wider use of past payment records and scoring techniques
to help identify and advise those that might get into debt and to
design the best method of recovery. Better information would help
the Department manage debt recovery more effectively.
The Department offer a range of payment methods and provide
information and advice to taxpayers on their responsibilities and
what to do if they have a problem. They need however to update
their leaflets providing advice on settling debts, make more advice
available on their website and do more to help taxpayers understand
how their tax is calculated and the amount that is owed. They are
also considering whether to offer the facility to pay by credit
card, including how the costs of handling fees would be met.
Most people and businesses pay their taxes on time, but many get
into arrears because of financial difficulties or because they are
unwilling to pay. Over £3 billion of debt is over a year old. The
longer a debt is outstanding, the harder it becomes to collect. In
Budget 2003, the Department were given additional funding for 75
staff to reduce the backlog of debt which should bring in an extra
£85 million a year in tax revenue by 2007-08. Following the first
year’s experience of this initiative, the Department should review
the scope for further reductions in debts over a year old.
In the year to October 2002 the Department wrote off tax and
other miscellaneous duties of over £500 million and in the year to
March 2003 £275 million was written off in respect of National
Insurance contributions which were no longer recoverable. Over £575
million of this was written off as a result of business failure or
insolvency. The Department have started to take earlier action to
identify businesses heading for difficulty which could reduce write
offs by about £50 million a year. Some tax authorities overseas use
other measures to protect revenue, which the Department do not have
the power to apply, for example using bank guarantees and requiring
companies to put taxes into separate bank accounts in the
Department’s name as soon as these are deducted.
Sir John Bourn said today:
"Much tax is collected quickly but at any one time there are
billions of pounds outstanding, some of it long overdue. Faster
recovery and preventing the build up of debt could bring in money
which could be used to improve public services. My report
identifies further opportunities for the Inland Revenue to improve
how they collect debts."
Notes for Editors
- The Inland Revenue collected £219 billion in tax and National
Insurance Contributions in 2002-03. Taxpayers owed around £14
billion at the end of March 2003, but the amount fluctuates
throughout the year because of different statutory deadlines for
paying the various taxes. The largest amounts outstanding are on
PAYE (covering income tax and national insurance contributions
deducted by employers), Corporation Tax and self-assessed Income
Tax. The amount owed includes outstanding tax, interest, surcharges
for late payment and penalties for failure to submit tax returns on
time.
- The Department’s Receivables Management Service is responsible
for collecting and enforcing recovery of debts. It employs around
8,000 staff and costs £150 million a year.
- Press notices and reports are available from the date of
publication on the NAO website,
which is now at www.nao.org.uk. Hard copies can be obtained from
The Stationery Office
on 0845 702 3474.
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office which employs some 800 staff. He
and the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 25/04
All enquiries to Barry Lester, NAO Press Office: Tel: 020 7798
7937
Mobile: 07748 181692