Tackling the Tax Gap and Collecting HMRC Debts

News, Tax,

The Government has said it remains dedicated to a tax system that is easy to use for both businesses and individuals and ensures that everyone pays their fair share.

As part of this commitment, they’ve introduced a ‘Tackling the Tax Gap’ initiative, which aims to generate £5 billion over the next five years.

This initiative includes significant investments being made to improve HMRC’s debt collection efforts, with the focus being on chasing individuals with tax debts who are able to settle them, while also supporting those who are unable to make their payments and are perhaps in temporary financial difficulties.

The Government also wants to reduce instances of rule bending and tax evasion. Opportunities for tax fraud are to be reduced, and severe action is to be taken against promoters of tax avoidance schemes. In a significant move, sentences for the worst forms of tax fraud will be doubled from 7 to 14 years.

HMRC’s Tax Debt Strategy

This outlines HMRC plans to improve the process of tax debt management starting from the fiscal year 2023/24, with the main goal to reduce both the volume and value of outstanding tax debts.

It includes the following key objectives:

  • Facilitiating Payments

HMRC aims to simplify the payment process for customers who are able to pay their tax debts promptly. This involves offering convenient payment methods and ensuring that payments are allocated correctly to the respective tax liability.

  • Supporting Those in Need

HMRC is committed to providing support to individuals who require assistance in dealing with their tax debt, ensuring a more compassionate approach.

  • Effective Enforcement

For individuals who refuse to pay their taxes or cooperate, HMRC will take necessary enforcement actions to address the issue.

To achieve these objectives, HMRC has identified four strategic pillars:

Pillar 1 – Preventing Tax Debt

This pillar focuses on minimizing the creation of tax liabilities that eventually become debts. It comprises three sub-pillars:

  • Payments – Simplifying the payment process to prevent the accumulation of debts.
  • Compliance Debt – Reducing the number of liabilities resulting from compliance interventions by improving payment options and communication.
  • Tax Policy Design – Incorporating debt prevention into tax policy design to reduce future debt creation.

Pillar 2 – Tailoring Interventions

This goal is to apply the most suitable interventions for specific debts and customers at the right time. It involves three sub-pillars:

  • Data Sources and Uses – Utilizing various data sources to enhance segmentation for more effective interventions.
  • Operational Deployment – Implementing tailored approaches throughout all relevant interventions.
  • Optimized Debt Journeys – Creating personalized and dynamic customer journeys using data and analytics for optimal debt resolution.

Pillar 3 – Effective and Efficient Resolution

This pillar is dedicated to efficiently resolving tax debts through various means, including payment arrangements, remission, write-off, and administrative actions. It includes three sub-pillars:

  • Channel Shift – Resolving debts through digital channels to improve efficiency.
  • Recovery Powers – Using appropriate powers responsibly to recover debts.
  • Internal Processes – Streamlining internal debt management processes for quicker resolution.

Pillar 4 – Being Adaptable

HMRC aims to adapt to changes in debt volume and priorities effectively. This pillar consists of three sub-pillars:

  • Forecasting and Insight – Gaining insights from external sources to forecast debt behaviour accurately.
  • Governance – Implementing a governance structure to monitor and respond to strategy changes.
  • IT Systems – Ensuring flexibility in IT systems to accommodate adjustments in eligibility criteria and thresholds.

Additionally, HMRC’s Charter commits to uphold high standards of professionalism, respect, and integrity when dealing with customers. They also emphasize their responsibility as a creditor by clearly communicating options and consequences to debtors, particularly those facing financial difficulties.

Tax Administration Framework

New measures will also be introduced to strengthen HMRC’s data gathering powers. From 2025/26:

  • Employers will be required to provide data on employee hours paid as part of their PAYE reporting; and
  • Shareholders in owner-managed businesses will be required to include on their self-assessment tax return their percentage shareholding and dividend income from their company (separately to any other dividend income they may receive).

These measures will build on previously announced HMRC powers that will enable them to access taxpayer data from online marketplaces (e.g. from airbnb) from the 1st January 2024.

As always, we’d advocate for clients to contact HMRC before any payment becomes overdue, using the details included in our ‘How to Pay your Tax’ sheet. They are always far more receptive before an amount is late, and payment arrangements are much more likely to be agreed. If you’re unsure, please get in touch with us in the first instance, or have a look at HMRC’s guidance.

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