Will HMRC call in the bailiffs to collect bad debts?

HM Revenue and Customs hasn’t had the best year. Not only has the UK tax body found itself at the centre of controversy after miscalculating millions of people’s tax, causing MPs to launch a major inquiry into its effectiveness, but now an accountancy firm’s warning that a high increase in the number of bad debts mean that it's having to resort to using increasingly aggressive tactics to get back what’s owed. Which is sure to go down swimmingly with businesses...

Accounting firm UHY Hacker Young, over the past 12 months, there’s been a 40% increase in the level of bad debts owed to HMRC - a rise from £4,557m to £6,367m. The huge rise is largely down to an increase in the number of small businesses choosing to keep hold of their cash to pay other bills, rather than paying their taxes - courtesy of the 'time to pay' scheme, introduced by the Labour Government during the recession to allow struggling businesses to defer their tax payments.

But while the scheme was introduced to placate the fears of beleaguered businesses during the credit crisis, it still didn’t stop many businesses from going bankrupt – leaving millions of pounds owed to the tax man. National Insurance Contributions have apparently cost the Treasury the most - the amount written off by bankrupted businesses jumped by 78% to £920m in the last year. The figure’s so high because when a business goes bankrupt owing NI payments to its employees, it’s the Government’s responsibility to top up their NI credits.  

UHY Hacker Young also says HMRC failed to act quickly enough to address mounting debts: apparently, in many cases, it left it so late that money can't be collected because the debt has hit the six-years threshold, after which it can’t be collected. Now the accountants are warning that the Treasury’s desperate need for cash means their debt collection tactics are going to be much more aggressive.

While the HMRC has every right to collect this money, some are questioning, after the tax blunders of this year, whether it will be able to cope effectively with fighting tax avoidance and evasion on the current scale. But with the Government keen to maximise its tax take, we imagine it will be pretty aggressive in its pursuits this year...