Taxman treads a fine line on debt

As the recession deepens MPs are asking whether HM Revenue & Customs is
doing enough to help struggling businesses that are falling behind on their

Lesley Strathie, the recently appointed chief executive officer of HMRC, says
that the department is striking a balance between being sympathetic towards
smaller businesses who are being hit by the economic downturn, while also
maintaining the flow of tax revenue into the Treasury.

Last November the National Audit Office issued a report which estimated that
the total number of tax debts rose by 22% to £15.8m from a year earlier.

The report also said it was concerned that HMRC does not have the resources
to deal with the increase, having cut staff handling debt by 14% to 6200 since

More cuts are are planned. HMRC says that it plans to close two thirds of its
tax debt offices, which will mean the closure of around 50 offices in the UK.

MPs worry that HMRC’s debt management staff will struggle to keep up with the
predicted growth in tax debt as the economy worsens.

HMRC is currently consulting on its approach to manage tax debt and whether
to adopt tougher sanctions on high-risk taxpayers.

Strathie, and other senior managers at HMRC, were last week questioned about
tax debt by MPs on the Commons Committee of Public Accounts.

‘We’re trying to give people sufficient help so they’re not going out of
business – it’s treading a careful line,’ Strathie told MPs. ‘We’re sympathetic
when we believe it’s a short-term problem. We don’t want to push someone into
premature liquidation if it can be avoided.’

HMRC is also trying to help struggling businesses through a new helpline. The
Business Payment Support Service received nearly 28,800 calls from businesses
struggling to pay their tax bills and granted 14,200 extensions to tax bill
deadlines between 24 November and 4 January, including 2,700 over the Christmas

But there is still plenty of room for improvement over managing and
collecting tax, say MPs, who are urging HMRC to focus on taxpayers’ most at risk
of default.

MPs want the taxman to take a more ‘risk-based’ approach to tax debt. Under
this approach taxpayers deemed higher risk would be subject to different
sanctions, including tougher penalties for submitting tax payments late.

The Netherlands is one country where tax authorities have successfully
adopted this approach, according to Edward Leigh, Conservative MP and chairman
of the Committee of Public Accounts.

Strathie conceded that HMRC should have taken a risk-based approach to tax
debt earlier, but said a decline in its debt management staff has hindered

‘The only thing we can change is the future… like any other department HMRC
has to prioritise its resources,’ he said.

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