Taxman denies claims debt chasers are strong-arming SMEs

The taxman has clashed with advisers on the issue of debt collectors pursuing tax bills which may not be due for payment.

This comes alongside the announcement in July that HMRC would start to use debt collection agencies in 2010-2011 in a bid to collect an extra £140m in tax.

Alan Boby, tax partner at chartered accountants Ellacotts, flagged up the case of a client who pays PAYE and national insurance to HM Revenue & Customs on a quarterly basis instead of monthly.

This simplified method is allowed for businesses whose payments fall below a threshold of £1,500 per month.

However, Boby said his client had been contacted by HMRC's debt collection division on 15 September, a month before their latest quarterly payment of around £700, which is not due until 19 October.

When Ellacotts approached HMRC on their client’s behalf, they were told that demands for unpaid PAYE and national insurance for PAYE months four and five – July and August 2010– had gone out and the client had been wrongly caught up in the trawl.

On the strength of this, thousands of small businesses across the country could find themselves pursued unnecessarily, the UK200Group warned.

"I accept that HMRC should tighten their debt collection procedures for taxpayers who do not pay on time," Boby said.

"However, I believe that nobody has legal grounds to chase a debt that is not yet due!"

However, Boby said the case that had been brought to light was not an isolated incident.

There have only been a handful of cases ,according to the tax expert but it had still led to HM Revenue & Customs issuing internal instructions to their offices informing them that demands had been made by mistake for monthly PAYE to employers who only needed to pay quarterly.

"At this stage it is hard to say what has triggered the problem but it seems likely that recent changes to the debt collection system did not properly take into account those businesses that have a right to pay over PAYE on a quarterly basis," Boby said.

HMRC rejected the concerns, adding that the external debt collectors agencies
which have been tasked with bringing in £140m of unpaid bills only chasing older
liabilities known as "legacy debts".

"HMRC does not recognise the scenario described," the taxman said.

"We can confirm that no current PAYE debts whatsoever have been placed with
debt collection agencies."

Furthermore before any debt is passed to a DCA a 'final opportunity to pay'
letter is issued - only if that is ignored would the debt be passed to an
agency."

HMRC has internal debt collection departments called ‘local recovery offices’.

They do not generally outsource debt collection to outside agencies but it was not uncommon, Boby said, for instances where the recovery offices have been "let loose" to demand tax that is not due.

"If these mistakes are being caused by a fundamental systems problem then, clearly, recovery offices should not be making demands if they cannot be sure that an employer has failed to file a tax return or pay tax on time, " Boby added.

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