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The Recovery of Debt by the Inland Revenue

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.”

"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."

Sir John Bourn

Notes for Editors

  1. 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.
  2. 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.
  3. 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.
  4. 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.

PN: 25/04