PAC “not confident” in HMRC’s ability to pull back tax debt after “game-changing” pandemic hit

26 March 2022

Rogue or ‘phoenix’ firms have exploited Covid measures to embezzle large sums of public during the pandemic

In a report today the Public Accounts Committee says COVID19 has “changed the nature and scale of tax debt” with an “enormous task” for HMRC to bring tax debt back from the current “mountain” of £39 billion to the pre-pandemic level of £16 billion. The Committee says “to achieve this fairly, and without harming economic recovery, HMRC will need to strike a difficult balance” - actively pursuing those who can pay their tax debts but are choosing not to, while supporting individuals and businesses struggling with the ongoing impact of the pandemic that “has left more taxpayers in vulnerable circumstances and less able to cope with their debts”.

The PAC has particular concerns about “rogue or ‘phoenix’ firms that have been able to exploit the temporary restrictions on insolvency action and the availability of covid support grants and loans to embezzle large sums during the pandemic”.

HMRC “does not know how long it might take to reduce the debt balance to pre-pandemic levels and has not clearly articulated a clear plan or set out a detailed timescale to give the PAC confidence it can manage the challenge it now faces”. The longer that tax remains uncollected, the greater the risk that HMRC will never be able to collect it. This is unfair to the majority of taxpayers paying their fair share and results in a loss to the exchequer.

The PAC says HMRC needs more effective communications with taxpayers, a better understanding of taxpayers’ ability to repay debt and whether it should make more - or less - use of private sector firms to help collect debts.

Chair's comments

Dame Meg Hillier MP, Chair of the Public Accounts Committee, said:

“You might be forgiven for thinking we’ve magically found that tree after all - the public purse is rattling but a chunk of the tax revenues needed to refill it have not been collected. Add to that the pandemic and record inflation, and HMRC has a tricky balance to strike. Those least able to afford rising bills, including tax bills, are also the easiest collection “targets”. HMRC must tread carefully, taking a sensitive approach that supports a renewing economy, and doesn’t necessarily include bailiffs coming knocking.

At the same time, HMRC’s challenges chasing down high-wealth individuals and companies who take advantage of every trick in the book to avoid and evade tax and outrun the law are well-known. Those tricks are just not available to ordinary people, now emerging from the misery of the pandemic into an exploding cost of living crisis. HMRC must push much harder at the doors - no matter where they are - of those who are not paying their fair share.”

Further information

Image: PA