Tax debt is at more than double its pre-pandemic levels and up to 2.4 million more taxpayers owe it to HM Revenue and Customs (HMRC), according to an expense watchdog.
The staffing levels at HM Revenue and Customs (HMRC) are unlikely to be enough to manage the increased workload, with years of tax debt ahead that are perhaps much higher than usual, the National Audit Office (NAO) said.
As Britain emerges from the pandemic, HMRC will have to balance negotiating tax debt by allowing taxpayers time to recover their funds, it added.
The taxpayer paused most of debt collection activity while the UK was shut down in March 2020. To support businesses and individuals, payments of AVI and self-assessment income tax have also been delayed.
Tax debt grew by £ 26 billion between January 2020 and September 2021.
About £ 42 billion was owed to HMRC in September 2021, more than £ 16 billion in January 2020.
Total tax debt peaked at £ 67 billion in August 2020, with some debts being repaid as the economy reopened and extensions for AVI and self-assessment passed.
“HMRC still faces a major challenge to remove the remnant,” the report said.
The tax authority anticipates that it will have double the usual level of debt to be managed at the end of March 2022.
It predicts that total tax debt will shrink to £ 33 billion by March 2022, but that assumes the pandemic has not changed repayment behavior, according to the NAO.
It said up to 2.4 million more taxpayers owe to HMRC, comparing September 2021 with January 2020.
The average amount owed by taxpayers has risen to £ 6,800. Older debts, which are often more difficult to collect, have risen in value from £ 2.5 billion in 2019-20 to £ 4.4 billion in 2020-21.
HMRC prioritized which debts to pursue based on the likely impact of the pandemic on the ability to pay.
However, those whose ability to pay was considered the least affected often had larger debts, the NAO said.
Tax debts usually need to be cleared before the next tax period, but this may be unrealistic for many of those affected by the pandemic and HMRC has made it easier for taxpayers to make longer repayment arrangements.
The average duration of repayment plans has increased from about five months pre-pandemic to 12 months in July 2021, the NAO said.
Efficiency rides meant that HMRC reduced the number of employees working in debt management by 18 percent between March 2014 and March 2020.
It kept its debt collection rate at about two-thirds of new debt created each year – suggesting it could have reached more with greater capacity – the NAO said.
It added that HMRC is unlikely to have enough staff to manage the increased tax debt incurred by the pandemic.
HMRC intends to recruit 1,000 full-time employees in 2021-22, however it has told the NAO that once the staff is taken into account, this will only address current staff shortages.
The NAO said HMRC should develop a revised strategy to recover tax debt that would take into account the various effects of the pandemic on different taxpayers, and identify who is more able to pay and those most severely affected.
Gareth Davies, the head of the NAO, said: “HMRC is facing several years of managing a much higher level of tax debt than it has seen in recent times, as a result of the Covid-19 pandemic.
“Some debtors have already been able to repay their tax debt quickly, but an unknown number of taxpayers have been badly affected and will struggle to do so. HMRC must significantly increase its capability if it is to meet the changed scale and nature of the challenge. “
Dame Meg Hillier, chairman of the Public Accounts Committee, said: “Covid-19 has raised unpaid taxes, which HMRC must now try to recover.
“However, the pandemic had a polarizing impact on the taxpayer, with some maintaining their bank balances while others struggled to reach ends.
“HMRC is now facing a careful balancing act. It must quickly recover the unpaid taxes from those who can afford it, yet support those who are struggling to pay.”
An HMRC spokesman said: “As recognized in the NAO report, we have supported businesses and individuals throughout the pandemic, with debt support such as Time to Pay and VAT delays, and inevitably this has affected the debt balance.
“The debt balance is declining as the economy recovers and we are reconnecting with customers to understand their circumstances and agree on Time to Pay arrangements where appropriate – and we expect it to fall further.
“We have taken, and will continue to take, an understanding and supportive approach to dealing with those who have tax debts or care about their ability to pay their taxes.”
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