The Guardian notes this morning that the National Audit Office is saying civil servants and ministers have not got to grips with pursuing unpaid taxes, fines and benefit overpayments.
Of this I am quite sure; I have been saying that tax paid late is a part of the UK tax gap for a long time and that many more staff are needed at HMRC to deal with the issue for a very long time. HMRC have persistently denied that this is part of the tax gap or that their staffing rates are a problem when this is very obviously untrue.
To put this in context though I think the NAO understates the problem. HMRC collected £475.6 billion on 2012-13. Of that only 86.7% was on time, in itself a cause for concern, whilst the 97.1% rate for tax paid within 90 days curiously omits data for VAT - where by far the biggest problem with tax paid late appears to arise.
No wonder Lin H0mer, HMRC permanent secretary says in her report:
We plan to put an increasing focus on tackling debt and tax credits fraud and error. We are launching a new private-sector trial alongside our own efforts, and stepping up preparations for the switch to Universal Credit.
This is yet another example of a situation where action was obviously required long ago and PCS and I rightly pointed it out.
On the other hand, precisely the wrong action is being chosen. Private sector debt collectors have no chance of dealing with the obvious defence for all tax debt, which is that the sum claimed is wrong and needs to be reviewed before collection can proceed. The assumption that it's like collecting the overdue sum on a credit sales account is naive in the extreme.
Expect another costly failure requiring further consideration by the Public Accounts Committee sometime soon.
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You’re misreading the numbers slightly: the 86.7% is the proportion of taxpayers paying on time, not the proportion of tax paid on time.
An awful lot of people pay income tax late – I struggle with clients about this all the time. Never mind the large proportion of tax returns not actually done by 31 January – even if they’ve done the return, people realise on 31 January that they should be making a payment but it’s too late to get it through that day.
As the interest on £12,000 of tax is £1 a day, they don’t worry about it (though some do: one poor lady last year with 2 young children in tow spent all day trying to get her bank to do it on time and still failed, even though the interest at stake was about 10p and she really should not have bothered, not with the nippers to look after).
Same with 31 July. People vaguely remember that they need to pay something in July. We remind them, and then in August they get in touch to ask what the number (that we’ve told them in writing three times and over the phone twice) is.
If you want tax paid dead on time, shift the penalty for late ITSA to 1 day late instead of 30 days. But that would be a disproportionate response to a small cashflow issue, in my view, if 97.1% is coming in fairly promptly. And it wouldn’t have much of an effect, really – people procrastinate.
It’s still late
Yes. But not enough to be much of a worry.
The 2.9%, on the other hand, that needs chasing. You’ll never get it down to nil, of course, not while people make mistakes on returns and HMRC challenges claims – it seems to correlate fairly closely to the number they give for the amount brought in through compliance work (in as much as there can be any correlation between broad numbers like these) – but the lower it is the better. Hence HMRC’s letters following Cotter, for example.
Another point to note:
“The value of debt either written off or ‘remitted’ (not pursued by HMRC for reasons such as hardship or value for money) during the year was £5.3 billion.”
That’s 1.1% of it all. So we’re down to 1.8% of the total which is a pretty good level of accuracy for this sort of thing, isn’t it? Don’t we usually assume that stock shrinkage is around 2% in a retail environment for example?
Why are you always so relaxed when tax is not paid?
Mr. M.,
What exactly does HMRC mean by hardship? I had a rummage on their website but couldn’t find anything.
Inability to pay
Actually – most is they can’t find the payer or it’s a company that has gone bust
When yu have people on your blog not paying their credit card bills, then a small amount not paying their tax is good.
I’m not sure I follow that
The tax gap is the time value of the delay in getting the 1.8%, i.e. 3 or 6 months at the appropriate interest rate the government pays to finance that amount. Has to be small.
What I find interesting is the number mentioned here above of 5.3b of “forgiven tax”.
How much of that is what disappears in the famous “pre-packs”? This practise is a bit of a sport in this country and is virtually unthinkable in many countries. Unfortunately, I have seen it quite a few times and in very dodgy situations. Small businesses run into the wall, almost voluntarily, where all debts are gradually financed with PAYE (the smart people know to pay their VAT to the penny), and then cry to the judge for a pre-pack and having as sole creditor HMRC. Either HMRC gives in or you lose the jobs… It’s not Amazon, but it’s a scam just as much…
The tax gap is nit just interest list
It is also the need to borrow
If your logic as right our national debt would be about £35 bn now
http://anotherangryvoice.blogspot.co.uk/2014/02/tory-ideological-mission-rich-richer.html
Regarding the student loan issue does anyone know if the selling off of the debt means they are NOT written off after thirty years and can thus be chased to your grave (and after) for the money?
I agree that when the interest on late paid tax is so small, we’ll continue to have people paying late…. surely the way to resolve this is to have higher interest on late payments and stricter processes.
Or, not to worry about it coming in late so long as it actually does come in.
If the interest on the late tax is equivalent to the interest on the additional Treasury borrowing required, then on one level there is no harm and therefore no foul.
They’re roughly comparable now, I believe, but I’d be happy for interest on overdue tax to go up a bit as an incentive. Though the interest on overpaid tax should also go up: it’s rather derisory at the moment.
Interesting article. Surprising to see that the number of people who do not pay their taxes on time is relatively big. Ofcourse the low rate of interest does not encourage them to pay earlier.