With tax debt now at £45.5bn, will HMRC’s new debt strategy prove effective?

New figures released today by HMRC show that amount of tax owed to the Exchequer but remaining unpaid totalled £45.5bn as at the end of September 2023, a slight reduction from the £45.9bn balance for the quarter ending 30 June 2023 but still well above pre-pandemic levels.

The total debt comprises £7.8 bn of ‘managed debt’ with the numbers of taxpayers in Time to Pay arrangements falling slightly by 0.4% over the previous quarter to 888,863 at the end of Sept 2023.

Meanwhile the debt available for pursuit climbed 3% to £37.7bn, up from £35.6bn at the end of June 2023.

While there has been little change in the proportion of customers filing their returns and declaring liabilities on time, there has been a drop in the number of customers paying on time.

HMRC notes that the majority of tax debt is owed by small and medium-sized businesses.

Taxes owed to HMRC may also be contributing to rising numbers of corporate insolvencies. The latest figures for September 2023 show that there was a 17% year-on-year rise in corporate insolvencies.

The new debt figures have been released just days after HMRC published its new tax debt strategy.

This was developed in response to a 2021 report from the National Audit Office in which the NAO recommended that HMRC develop a revised strategy for recovering unpaid tax in light of the rise in debt during the Covid-19 pandemic when total tax debt peaked at £72bn in 2020. This was due, in part, to the tax authority pausing much of its debt collection activity.

HMRC’s new strategy outlines how the authority intends to be a responsible creditor, while minimising the volume and value of tax debt. It focuses on four areas – preventing tax debt, tailoring interventions, effective and efficient resolution, and being adaptable.

Dawn Register, head of Tax Dispute Resolution at accountancy and business advisory firm BDO said: “Today’s figures show that tax owed but remaining unpaid remains stubbornly high – with HMRC predicting that debt levels could remain close to these levels throughout the remainder of 2023 to 2024.

“HMRC rightly showed forbearance during the pandemic and has since supported taxpayers in difficulty by making it easier to set up Time to Pay arrangements. However, there is still a huge catch-up exercise required to return debt levels to pre-pandemic norms.

“While HMRC’s newly published strategy for tackling tax debt looks very sensible in theory, we’ll need to see how effective it is in practice.

“Recent developments such as the online portal which allows individuals to apply for Time to Pay arrangements remains helpful. Businesses too are able to set up TTP arrangements for certain taxes online but this doesn’t yet apply to some important taxes such as corporation tax, so we would like to see these online facilities extended.

“However, the general experience of taxpayers is still a lack of resource at HMRC. It is often difficult to speak to someone who can help when there are specific circumstances that need support. The debt management team often does not allow emails and does not have direct phone lines which can be incredibly frustrating for taxpayers and agents alike.

“There are many demands on the chancellor ahead of the Autumn Statement but further modest investments in HMRC’s debt management team could pay dividends if this results in a more effective debt collection process and, ultimately, more funds for the public purse.”