The National Audit Office has warned HM Revenue and Customs will not be able to deal with the increase in tax debt as a result of the pandemic and recommended the taxman develop a revised strategy for recovering the debt.
In a report yesterday (November 17), the NAO said HMRC is unlikely to have enough staff to manage the increased load resulting from the pandemic.
It said it should come up with a new strategy which should consider the impact of the pandemic on the ability of taxpayers to pay the debt.
The NAO said despite HMRC planning to hire 1,000 full time staff between 2021 and 2022, once staff turnover is factored in, this “will only address current staffing shortfalls”.
Gareth Davies, head of the NAO, said HMRC faces several years of managing a far greater 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 needs to significantly increase its capacity if it is to meet the changed scale and nature of the challenge.”
The level of tax debt in the UK hit £42bn in September this year, compared with £16bn in January 2020, before the pandemic. HMRC predicts this amount to fall to £33bn by March 2022.
The average amount taxpayers owe has increased by 60 per cent, rising from £4,300 to £6,800. Older debts, which are often harder to collect, have increased from £2.5bn in 2019-20 to £4.4bn in 2020-21.
The NAO noted that when the country went into lockdown last March, HMRC paused most of its debt collection activity, and payments of VAT and self assessment income tax were also deferred.
As the UK emerges from the COVID-19 pandemic, it said, HMRC needs to pursue tax debt while allowing taxpayers time to recover their finances.
The NAO added before the pandemic HMRC had achieved workforce efficiencies, but it did not close the gap between new tax debt and debts collected.
Between March 2014 and March 2020 the taxman maintained a rate of debt collection at two thirds of the amount of new debt collected.