Govt failing to tackle outstanding debt despite tax crackdown

Tuesday 22 July 2014

The government has been criticised for its handling of outstanding debts owed to its departments.

As the Seventh Report of Session 2014-15, HC 555 was released, Margaret Hodge, chair of the Committee of Public Accounts, questioned the coalition's policies for managing money owed.

"Taxpayers are being failed by the government’s move to write off billions of pounds in old debt – mostly owed to HM Revenue & Customs (HRMC) – because it says collecting it would be too difficult," the Public Accounts Committee wrote in a statement.

More than £3 billion has been written off by HMRC and the Department for Work & Pensions in uncollected taxes and other payments. In total, it is believed the government is owned over £22 billion. Of this, £15 billion is thought to be outstanding to HMRC.

According to the Public Accounts Committee, this is due to the lack of a central policy for managing the money owed.

While the Treasury and Cabinet Office are currently creating such a policy, Ms Hodge claims this simply isn't good enough.

"Debt owed to the government has reduced by around £5.5 billion in the last four years," she said. "However, this is a result of reductions in HMRC’s balance – a chunk of which was from writing off or deciding not to pursue £3.5 billion of tax credits debts and other debts it considers ‘uncollectable’."

Volumes of old debt have been allowed to build up in certain departments and as of March 31st 2013, the majority of debt in HMRC was more than 180 days old.

Ms Hodge explained that the older debt is, the harder it is to collect and to tackle the problem departments have fallen back on periodic write-offs.

The government is also making use of debt collection agencies and £1.2 billion in past-due receivables have been passed to private debt collectors.  

However, this has caused concern for the Public Accounts Committee, which claims that because it cannot be demonstrated that departments properly understand the benefits and risks of using agencies, vulnerable debtors are put at risk.

This is all set against a backdrop of rhetoric and policy from the government designed to clampdown on tax avoiders and those who fail to settle levies on time.

Matt Fryer, senior tax manager at Brookson, says: "Contractors, limited companies and sole traders are constantly being told about the importance of complying with tax law and paying up on time. Therefore it is disconcerting to hear the extent to which the government is suffering from unpaid debts and the lack of a strategy to tackle this deficit.

"The majority of people pay their taxes on time and it's the job of departments like HMRC to ensure all parties are paying what they owe."

The Public Accounts Committee claims a cross-governmental approach to managing debt is now needed to ensure the Exchequer gets more money paid into it.

By Victoria McDonnell

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