There's a story this morning in the press about H M Revenue & Customs' failure to collect tax due from those with whom it agreed deferred payment plans. The tax gap has increased by £650 million as a result. This was, of course, inevitable.
However, the failure to collect tax and other sums due at HMRC is routine. It happens everyday because there are simply far too few people employed to collect the money owing. Take an example I researched recently relating to companies.
This table shows the number of corporation tax returns requested by HMRC each year:
There is an abysmal, and declining rate of requests for and submission of tax returns. In 2009-10 just 64.7% of companies had submitted the returns due in that year by November 2010.
There are penalties due for late submissions of returns. Parliamentary questions showed how abysmal is the Revenue's record in handling these:
As is very clear when the unpaid sum due at the end of the year is compared with the net sum due (calculated after massive waivers) is that well over two years of penalties are due at all times.
This makes a mockery of the whole system of HMRC penalties: they might be imposed bu they simply are not being paid.
This is a sure sign of a tax system that is out of control: out of control because the government will not gave HMRC the resources needed to manage it.
This is a choice by this, and previous, governments. It's an appalling choice; the wrong choice; a choice that means the rule of law is not being upheld, public services are being cut, our society is being undermined and hone3st business is acting at a disadvantage to those who cheat.
It's time HMRC was told to manage our tax system, to enforce our law and to collect what is owing to ensure that there is a level playing field in this country, so that the honest can be sure they are being treated better than the dishonest, to make sure we are all in this together. And as importantly, to protect our services whilst repaying our deficit - something this government is clearly not intent on doing.
Now why is that?
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Wow. In Canada since approx. five years, there is a “one bowl” system that is administered by the Canada Revenue Agency. If a taxpayer with multiple accounts (say: corporate tax, federal indirect tax, withholding tax, etc.) has a balance payable (e.g., late filing penalties) then any receivables (e.g., indirect tax credit) is automatically applied against that and the taxpayer receives no indirect tax credit until the late filing penalties are “paid”. In effect balances are automatically moved around by the CRA which can make accounting difficult for taxpayers, but I suspect it helps the Minister of National Revenue get paid.
As my boss frequently says – we are circling the drain
Looking at the 2009-2010 figures for CT late filing penalties, it would appear that approximately 2/3rds of the penalties levied were discharged on appeal.
Why could this be the case, is it because the penalties have been raised without a basis in law? If this is the case doesn’t this point to maladministration with HMRC rather than any alleged dishonest conduct on behalf of those receiving penalty awards, which are statistically probable to be discharged?
No – it meant they wrote piles off as irrecoverable
If the company has gone the debt has to go as well
Nothing as sinister as you think
Call it bad debt instead
So why do they head the column “discharged on appeal”?
If something is listed as ‘discharged on appeal’ then, assuming we’re going to rely on any of the information at all, don’t we have to accept HMRC at their word? If something is appealed and discharged than HMRC are saying that it is not due. Their reasons for saying that could, of course, vary wildly… some penalties will have been raised purly due to HMRC error, there would be bona-fide taxpayer errors or misunderstandings where the penalty is not appropriate, or their may, indeed, be tax officials deciding that they can’t be bothered/don’t have the resources to fight.
I often have cause to appeal penalties (I say ‘often’, I probably do half a dozen a year… and in no way suggest that is representative) but they tend to be because of system or communication errors on the HMRC side. An example (not included in these figures as it relates to VAT) was a very large late payment penalty when the only reason the payment was late was that we’d moved to a VAT regime where direct debits were not taken. We hadn’t realised, the HMRC communication was poor, and the tax was paid the next day as soon as we spotted the problem. The penalty was obviously disproportionate so it was successfully appealed… no drama… no loss to the exchequer (unless you count the failure to collect a disproportionate and opportunistic penalty for a minor technical breach) and no injustice.
Once again, you’ve highlighted a real issue but seem to want to interpret the data in the most aggressive way possible to make your point. That’s unnecessary. John makes a fair point and you should try and find some sort of evidence to support your assertion that this is ‘bad debt’.
Might you suggest in which other column the bad debt goes?
‘Outstanding amounts unpaid?’
In the absence of further analysis, neither one of us knows the answer. That’s kinda my point. Along with the fact that we have no idea how the appealed amount breaks down between that which was rightly ‘written off’, and that which is rightly classed as part of the problem you discuss.
My experience with HMRC has been similar; Its not uncommon to receive a letter with no telephone number or email on it. Some departments don’t open/process post for weeks.
So delays by the HMRC result in penalties, which would have been resolved if they had opened their post and read it.
Clearly as you mention its a resourcing issue, but there is a world of difference between the reversal of an erroneously raised penalty, and the writing off of a debt which is valid and collectable, but has not been collected (i.e. a bad debt).
But you’re ignoring my point – even the remaining debt is not collected
How come you people always miss the point?
Are you trained in it?
I just didnt understand, no need ad hominem attacks.
Lee T’s view accorded with mine. Well perhaps you could extrapolate that if say 2/3rds of the charges raised are successfully appealed, then of the remainder, there will be a proportion that are simply not paid because the person receiving the penalty CBA.
I think we would agree though
(i) HMRC and under resourced
(ii) They should have more resources
(iii) Their systems are poor
(iv) Their customer facing “units” are poor
They are very hard to deal with. Until they are adequately resourced though they wont be able deal with MT fraud. As you have mentioned previously Companies House are too quick to use their powers to strike off companies.
Instead of your bank account reporting changes in the bill sponsored by the Green Party, there would be better ways of dealing with this problem. If the banks in the UK had a statutory obligation to check gazetted companies (struck off) and remit bona vacantia bank account balances to the treasury solicitor or DoL as appropriate, then this would assist the collection of taxes.
This would pay for many hospitals.
The public sector cuts, particularly in HMRC are so inappropriate and misguided.
OK, apologies
But the point is – pls note the columns re outstanding debt – and the fact it’s on average 2 years old
That’s where the bad debt is
Like your idea on passing over accounts – bet they wouldn’t comply though
Again, I must direct you to the point where I explicitly agree with the problem.
The value of the appealed column is £477m, which is 62% of the value raised. The amount not collected is 30%, and that appears to include that which was brought forward and is still outstanding. In the period covered they actually collected £300m from £390m of unappealed penalties (though, obviously, some collections will likely relate to older periods).
So, by insinuating that the £477m is part of the problem, you misrepresent that problem.
Is £227m of uncollected penalties a problem? yes it is. However, over the period the outstanding balance has actually fallen by £10m.. which you don’t mention. It indicates that HMRC are actually doing OK, but need a slug of resource to go after that unpleasant rump of unpaid debt. It would be great to see the aging at it.. is there a historic issue, or are they effectively running with debtor days of 700+.
I do, in fairness, think that the appeals figure is high… but assessing the merit of it is a paper in it’s own right, and not something to draw conclusions about here.
And, as an aside, as an accountant I would consider that I AM trained in seeing how numerical information fits with the narrative applied to it. I’m not ‘missing the point’, Richard, I’m doing my job 🙂
What’s that job then?
Most accountants think it is undermining the gov’ts income stream
You push your credibility beyond the limits of possibility here
The rump of debt is more than 2 years old in all cases: that was my point and as ever you misstate it
That’s not incompetence: tat’s wilful isrepresentation of the truth
Please don’t comment again: you bring the profession into discredit however I loo at your comments
I don’t understand your hostility.
However I agree that the rump is all at least two years old. I didn’t take into account the appealed amounts meaning that in each of the last two years only £100m was ultimately due. Mea culpa, there. I can admit to a miscalculation. It’s interesting that you’ve now decided to admit that the bad debt is probably where I said it was, not where you first said it was. Would it really kill you to say ‘fair point there’?’
Richard, When a company is struck off, its assets are bona vacantia. They belong to the Crown. If a bank makes a payment, the directors and the bank as an “accessibly” are taking other peoples (the Crown’s) money.
It would just need a few prosecutions by the crown for the banks to set up there own systems, wouldn’t even be a need for legislation.
should say accessory to accessibly – edit the original if u like
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