Tax Debts following the Pandemic – through the eyes of the National Audit Office (NAO) and Tax Debts Help and Advice.

Tax Debts following the Pandemic – through the eyes of the National Audit Office (NAO) and Tax Debts Help and Advice.

by admin

The National Audit Office produce amongst other things national debt statistics. With tax debts at an all time high, this report focuses on HMRC and how they are handling the aftermath of the pandemic, covid19.

With £42bn in debt now owed to HM Revenue and Customs (as of 30th September 2021) are HMRC now seeing the extended repercussions of the pandemic?

The total debt peaked in August 2020 at £67b owed to HMRC.

This figure is estimated at an increase of 2.4m further taxpayers in debt between 31st January 2020 and September 2021. Further to this there is an estimated £26b increase in the total debt owed to HMRC between those dates also.

As HMRC have reduced their staff working within their debt management units by 18% since March 2014 and made further reductions, to date – How can HMRC effectively collect this escalating debt in?

It is also our experience that owing to HMRC staff being moved from one department to another, there are significant gaps within collection departments for experienced staff, leaving a lack of understanding and knowledge. Overall, this leaves the taxpayer or agent, experiencing difficulties in speaking with agents who understand the queries.

Further to this, although you can write in to HMRC (and this is something we strongly advise) the postal backlogs are enormous.

The financial and economic impact of COVID-19 is unprecedented, it goes without question that there is not a single household potentially effected in one way or another from this.

While tax liabilities have reduced somewhat since last year, HMRC still faces a significant challenge in clearing the backlog. As the UK emerges from the pandemic, HMRC will need to strike a balance in pursuing debt and allowing taxpayers time to recover their finances.

The National Audit Office (NAO) have released this report Managing tax debt through the pandemic – National Audit Office (NAO) Report

They consider whether HMRC has:

adapted its management of tax debt quickly and responsively during the pandemic and understood the impact of the pandemic on taxpayers’ ability to pay tax debt; and the capacity and capability it needs to manage tax debts.

In this article we review some of the points raised by the National Audit Office.

As we handle time to pay arrangements ourselves, and by virtue of that, deal with HMRC on a real-time basis, we have commented accordingly.

Our comments are based on practical experience within this field for over two decades. This experience gives us a unique position, we feel, to comment on actions taken by HMRC during and now in the aftermath of the pandemic.

HMRC’s real-time responses now, to requests, differ decidedly from what they seem to report and what the NAO has reviewed.

The NAO refer to the prompt response by HMRC early in the pandemic and its actions in setting up helplines and pausing its debt collection process.

Practically however, this may have helped some people, but not everyone.

Statistics provided by the National Audit Office highlight the relevant increases.

“Up to 2.4 million more taxpayers are in debt to HMRC following the pandemic, while those already in debt owe more.

HMRC estimates that up to 6.2 million taxpayers were in debt as of 30 September 2021, compared with 3.8 million taxpayers in debt as of 31 January 2020.

The average amount of each tax debt increased by 60%, from around £4,300 at January 2020 to £6,800 at September 2021. The value of debts over two years old increased from £2.5 billion in 2019-20 to £4.4 billion in 2020-21.”

National Audit Office
National Audit Office state HMRC couldn’t meet demand even though they maintain inbound and outbound lines.

We found that phone lines were inundated and HMRC could not handle the response.

Poorly trained agents were moved to departments to assist in any way they could.

This also did not assist taxpayers – By virtue of looking after our clients during these difficult times, as an agent, we found HMRCs agents lacking in ability to answer even the basic of queries and response times escalated for us quickly.

While communications were clear that no enforcement action was being taken during the deferred periods HMRC extended to taxpayers, nor did HMRC respond to taxpayers wishing to finalise arrangements to pay liabilities.

For example – The NAO do state that, although HMRC maintained inbound and outbound lines, HMRC could not meet demand.

Again, having attempted on numerous occasions to speak to agents at HMRC multitudes of telephone lines were closed, calls were re-routed, resulting in extensive on hold times, only to have the call disconnect on us.

HMRC became a ‘black hole’ and remain so, to date.

Point 11 within the NAOs report refers to the fact that HMRC has prioritised debts based on it’s understanding of the likely impact of the pandemic on the taxpayer’s ability to pay.

The real-time view of this, that we experience on behalf of clients, is quite the opposite, certainly in regard to HMRCs understands of a situation.

HMRC agents have very little understanding on how specific industries were affected by the pandemic and how this has caused long term difficulties. Nor do they appear to understand why perhaps businesses need to consider the likes of, lower monthly payments towards liabilities for a period and then increased payments.

Surely HMRC cannot be blind to the fact that any business at present can’t possibly forecast on stability and when this may occur as this relies on various external factors.

As an agent, trying to explain to HMRC how an industry is still struggling, meets with comments such as:

  1. Can’t they just get a loan?
  2. Why are they struggling to increase their income still, hasn’t everything gone back to normal?
  3. Well pubs and restaurants have been able to open for a while, why aren’t they doing better?
  4. Can’t they just get lower payments with suppliers? Re negotiate rent and rates etc?

The responses we are still getting are truly frustrating, when all that is required is a logical view on an industries difficulty and a mutually agreeable, sustainable payment plan.

This, however, does not stop us pursuing time to pay arrangements that work for our clients. It is down to the effects prior to, during and after the pandemic and the narrative we provide for our clients.

The National Audit Office report states – HMRC have recognised that taxpayers will need longer now to repay their debts. The report talks about the average duration of a time to pay arrangement increasing from around 5 months before the pandemic to 12 months, as of July 2021.

Historically some clients have always needed longer payment plans, even prior to the pandemic, and we have worked diligently to get these arrangements in place.

Referring to a period of 12 months being feasible now is unrealistic across many sectors still trying to recover from the pandemic financial ‘blow’.

Numerous sectors we speak with need longer than 12 months to re pay liabilities still, to date. We are finding that we literally must spell out everything to HMRC to get them to consider sensible, affordable arrangements – Surely this must change?

If, as an agent, we must explain the basics to HMRC, for example – why a company can’t get a loan at present, or why the fact that HMRC’s own online portals aren’t working and effect a business, or why a specific industry may not know what their income will stabilise at, quite yet – How are we supposed to trust that HMRC truly do understand the impact of COVID-19 moving through 2021 to 2022.

Section 12 of the NAO report mentions the following.

“The Cabinet Office told us that leading debt management practitioners outside government tend to focus on agreeing affordable repayment plans that can be sustained. As well as helping the person in debt, it also reduces the workload of following up failed arrangements (such as extra contacts to chase unpaid debts or renegotiate payment plans). HMRC told us it also seeks to agree affordable repayment plans with taxpayers, although some stakeholders felt it could improve in this regard”

For over two decades we have been negotiating with HMRC on behalf of clientsto accept just this. Surely it is logical that an affordable sustainable plan has the higher degree of success. As opposed to a re payment plan that utilises most of thebusiness income to sustain it.

One key factor of a time to pay arrangement is that new liabilities are paid on time and in full, a sustainable plan helps ensure this also and helps the company remain compliant.

We do wonder if HMRC may ever actually take this logical view, as opposed to saying they do when they clearly do not in our experience.

Point 15 of the NAO report talks about the use of external debt collection agencies and HMRCs capability to manage debt.

They mention the following:

“Stakeholders we spoke to said that HMRC could further develop its approach by focusing on agreeing affordable repayment plans, rather than focusing on the time taken to pay, and that it could point more taxpayers to independent debt advice”

In principle we agree with this.

Debt Management companies are capable of handling unsecured debts on behalf of clients and separate to this debt collection agencies can collect debt for HMRC.

However, there are key points to consider here, again based on real time experiences.

When HMRC refer liabilities to a debt collection agency, they do not refer the whole debt. In fact, they only ever refer a portion of the total debt owed to these agencies, and actually causeclients’ more financial distress.

Taxpayers engage with these debt collection agencies, agree a re payment plan and think that their debt is under an arrangement.

When in fact it isn’t.

What the taxpayer then finds, is that HMRC write to them separately about the rest of the debt, and owing to making an arrangement with the debt collection agency, the taxpayers’ affordability to manage the remaining debt is nothing – HMRC don’t consider this at all when utilising these agencies.

Debt Management companies – Although in practice the likes of self-assessment arrears can be including within debt management plans, it is in general, the pro-rota offers that cause the taxpayers additional stress.

HMRC simply would not accept a pro rota offer at, say, £10 p/mth against a £5000 self-assessment liability. All this will do is cause the customer/taxpayer more stress when HMRC decline this offer and ultimately end up pursuing the debt through their debt collection process.

Any tax liability should be dealt with under separate considerations that work in line with HMRCs practices and procedures.

HMRCs collections process and practices are a minefield, years of experience has given us the control and knowledge to work within these parameters to get payment plans accepted on behalf of our clients. We do not envision debt charities to understand HMRCs full position when this can change daily at the moment.

Point 21 and 25 of the National Audit Office report sums up HMRCs current position.

“HMRC faces several years of managing the impact of the pandemic on tax debt and current staffing is unlikely to be enough to manage the increased workload. It made efficiencies before the pandemic, but it did not improve overall levels of debt collection and it was writing off more debt. It has some new tools and powers, but these do not appear likely to make up the shortfall. It estimates that adding staff and private sector capacity would have most success in increasing debt collection. High rates of return indicate that this would be a good investment.”

Point to note: Where the NAO report section above refers to HMRC bringing in new staff, the report also refers later on that these numbers (given staff turnover) in principle, would only just about replace the previous staff losses and not gain additional staff levels.

“HMRC needs to improve its understanding of customers to be able to support them and target activity appropriately”

The National Audit Office report states that HMRC should.

“Adopt good practices from the private sector and from its own handling of debt during the pandemic on a permanent basis. In particular, a clear focus on affordability rather than repayment within a year could help customers maintain payments and reduce the workload of following-up failed arrangements.”

For over two decades we have worked with HMRC and our thousands of our clients to obtain payment plans that effectively work for all parties.

Across this time, we have not seen HMRC learn or adapt to any economic factors, not even a recession.

The pandemic may have highlighted to HMRC internal failings that they state they can change, but given the time we have worked with them, these are all still their failings that were relevant prior to the pandemic.

For us this suggests that as much as HMRC claim to be able to adapt to the economic climate owing to the pandemic, they have never adapted to real life situations prior to this.

We would appreciate HMRC to take the practical view, that longer arrangements are successful, based on affordability. However, agents would need significant training to understand this, they cannot even understand the basic business difficulties and obstacles now – What would make them change? Or what would encourage HMRC to adapt to a more real-world view of debt?

We are slowly finding some agents who appreciate what ‘knock on’ effects the pandemic is still causing but it would require a dramatic overhaul within HMRC to see a logical approach being adapted to the current needs of business owners and individuals.

We would always advise those who owe to HMRC to at least be paying something against their liabilities, even whilst trying to talk to HMRC to agree something more formal.

With extensive experience seeking time to pay arrangements for our clients, businesses like ourselves, are here to help should that need arise.

We understand completely the frustrations of dealing with HMRC, both historically, and now.

Hopefully we may see a positive change following the NAO report, but we also know that HMRC has been reviewing practices for years with no significant change.

The introduction of the business payment support line is one case to consider.

This line was introduced to aide businesses get arrangements in place, quickly and effectively.

It has been neither quick, nor effective in our dealings. With the same lack of agents and the inability to speak to an agent, it has fallen down. Taxpayers may also find that if you owe across multiple heads of tax, this line can’t help.

It is also the case if certain departments within HMRC are also involved in the collection process, this line can’t help you.

As is, in many cases, HMRC professes to assistin one way but in practice, it’s such a different story.

There are further articles on our website, where we fully explain what to expect from HMRC and outline how separate departments work and the route a debt can take.

HMRC Re-Payment Plan – Our Guide. –

We are always here to help guide and advise anyone struggling with arrears to HMRC. Owing HMRC does not mean your business may have to close, payment arrangements can help ease the financial burden on a business or an individual.


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