HMRC spend on private sector debt collection soars since introduction of RTI

Research published this by UHY Hacker Young shows an alarming rise in taxpayer’s money spent by HMRC on private sector debt collection since the introduction of RTI in 2013. No doubt HMRC will claim that this is value for money as they feel they are making real strides in closing the tax gap. The trouble is only they can quantify the tax gap and all the indications are that this isn’t an accurate analysis on which to justify a spend of £39m of the tax receipts they are supposedly chasing down.

HMRC themselves made the startling admission in the RTI post-implementation review that the vast majority of debts they looked at in ‘closed cases’ never existed in the first place. Here is what they said in December 2017: ‘Analysis of a sample of closed cases showed that, on average, 78% of the outstanding debt was spurious’.

If that is the case on whose authority were they allowed to increase their spend on private sector debt collectors? Its position as a non-ministerial department which is designed to preserve impartiality in the tax system leaves only the NAO (National Audit Office) and the PAC (Public Accounts Committee) to challenge its operational decisions on a value for money basis.

Every week when I’m lecturing I’m regaled with stories from employers and agents who have had aggressive encounters with debt collectors who have no background paperwork to justify their enforcement action, just a figure from HMRC to collect, if necessary taking goods to the value of the alleged debt. Of course, it’s not just debt collectors that cause massive reputational damage and unchargeable time for agents and worry for employers, incorrect winding up orders are also generated from the same corrupted data.

So, what is the chain of events that ought to have had prompted some root-cause analysis at a senior level within HMRC given the tax gap is one of its key KPIs:

  • The employer or agent submits PAYE data and makes PAYE payments
  • The core RTI database is unable at times to distinguish if this is a new or existing employment, so in at least 200,000 cases per year (HMRC’s figures not mine in the same RTI report) they duplicate the employment so inflating (incorrectly) the employer’s liabilities
  • The Enterprise Tax Management Platform (ETMP) which is HMRC’s payments’ system also acts unpredictably in allocating payments to the wrong period, year or even employer leading to a further incorrect perception of non-compliance

The net result is……

  • The employer is totally compliant
  • HMRC debt management staff are seeing figures that are incorrect but they’re unaware of that even though their PAYE colleagues know the data can’t be relied upon
  • The debt management team brief the private sector debt collector to collect a debt that doesn’t exits and pay them to do it

Scandalous doesn’t come close…..