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HM Revenue & Customs: Management of Tax Debt

HMRC has improved how it manages debts owed to it by taxpayers, according to a report by the National Audit Office. The amount of money owed has reduced from 4.3 per cent of tax collected in 2005-06 to 3.8 per cent in 2007-08. The age of the direct tax debt has also reduced. Over the past year the level and age of debt has increased on some taxes, however, and the total number of debts has risen by 22 per cent.

HMRC collected around £450 billion in 2007-08 in tax and National Insurance contributions from the UK’s 35 million taxpayers, ranging from individuals to large multinational corporations. In March 2008, £21.5 billion was outstanding on its debt management systems. £17.3 billion was in outstanding tax, interest and penalties whilst the remainder was overpayments of benefits and tax credits.

The total number of debts has risen by 22 per cent, from 13 million to 15.8 million in the past year. In part the increase reflects an increase in the number of taxpayers and wider trends in consumer debt; but it also reflects a change in HMRC’s priorities as it  focuses on higher value debts with fewer resources.

In 2007-08, HMRC’s Debt Management and Banking directorate  collected around £310 for every £1 spent, an increase of 10 per cent on the year before.  But HMRC cannot reliably measure the relative cost-effectiveness of different debt collection activities.

HMRC has yet to introduce some of the measures recommended by the Committee of Public Accounts in its previous report on debt, which have also helped other organisations to  improve their debt management. Measures include risk profiling; managing debt through a single IT system; linking and pursuing together debts owed by an individual taxpayer on different taxes; innovative methods for communicating with customers; and a more efficient telephone centre operation.  HMRC has developmental work underway, but the scale and pace of change has been restricted as other programmes take higher priority on funding. Such measures could however save money, through getting in more revenue and lower collection costs, and could help the Department better manage the growing level of debt.

“HMRC has improved the way it manages tax debt. But it has made limited progress in implementing some measures recommended by the Committee of Public Accounts in 2004 that would help it manage the growing level of debt in a more difficult economic climate. To manage tax debt more effectively, HMRC should link different debts owed on each tax by the same taxpayer and prioritise debts which are less likely to be paid without action by the Department.”

Tim Burr, head of the National Audit Office

Notes for Editors

  1. The level of debt fluctuates on a daily basis as debts are paid and new debts arise. The level of debt reported in HMRC’s 2007-08 Accounts as at 31 March 2008 was £25 billion. The level of debt outstanding on HMRC’s debt management systems in March 2008 was £21.5 billion. The difference is mainly because these systems exclude some debts which were due but which were paid almost immediately and there are timing differences in when debt is downloaded to these systems from the main tax systems. To analyse trends in debt levels we used the debt management systems figures.
  2. Press notices and reports are available from the date of publication on the NAO website, which is at Hard copies can be obtained from The Stationery Office on 0845 702 3474.
  3. The Comptroller and Auditor General, Tim Burr, is the head of the National Audit Office which employs some 850 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: 51/08