How can HMRC modernise its tax debt collection?

As one of the announcements from TAM Day 2021, the Government is considering how HMRC can modernise the methods it uses to collect debts. This is to ensure it is taking account of the changing nature of the economy and new business practices.

In particular, the summary cites the challenge for HMRC to collect taxes owed from businesses who set up their affairs in less traditional ways and those who conduct business in the UK without having a presence or physical assets here.

• An example of the need for change given is that HMRC cannot seize a company’s goods if they are stored in a third-party warehouse for fulfilment. This has been an increasingly common business model in recent years.
• Similarly, HMRC can recover established debts from debtors bank and building society accounts, but cannot extend those rights to digital wallets, where funds are held electronically but there is no associated bank account.

Importantly, the ‘call for evidence’ that has been announced also seeks views on HMRC’s approach to owners of small businesses who don’t engage with HMRC. Many of these business owners delay paying their taxes until the last possible moment, and usually only in response to HMRC enforcement action.

Opinion is requested of respondents in regards to the use of Directors personal guarantees and of security deposits in these situations.

The announcement states that the proposals ‘will not affect taxpayers who are in temporary financial difficulty and need support from HMRC to get back onto a sustainable financial footing, including those affected by the Covid-19 pandemic.’

We very much hope this reassurance is genuine but would question how HMRC will distinguish between those who can’t pay their liabilities and those who won’t pay.

Whenever a client has payment difficulties, we always advocate an early notification to HMRC to keep them aware of the challenges and your efforts to overcome them. This appears likely to become even more important as the findings from this call for evidence progresses.

You can find more detail around this call for evidence here.

We will of course keep you informed of any announcements that follow the period of consultation, and of any changes in HMRC powers or legislation that arise as a result.

If you’re struggling to make a payment of tax, as mentioned above, we strongly recommend that you contact HMRC to discuss making a payment arrangement as early as possible. If you’d like to discuss the process or the options available, please get in touch.