Finance Monthly - December 2021

26 Finance Monthly. Bus i ne s s & Economy Overdue Debt Over the 13 years prior to the 2020-21 financial year, HMRC’s overdue debt averaged £18.1bn, peaking in 2008/09 following the financial crisis, where the debt level approached £26bn. As seen in the figure below, the current level of HMRC debt has increased by £38.5bn (203%) to £57.5bn. Total overdue debt actually peaked at £72bn in August 2020, before falling to its year-end position of £57.5bn. Overdue debt as a percentage of tax revenue, which since 2011/12 had stabilised at between 2% and 3%, has also risen to 9.4%. There are several reasons for such alarming levels of HMRC debt and the primary reason being the support measures put in place throughout the COVID-19 pandemic, restrictions placed on HMRC’s ability to utilise its enforcement powers and HMRC changing their stance and overall approach on the collection of debt. More than half of the £57.5bn overdue debt (£31.3bn) relates to VAT deferred through the coronavirus VAT Deferral Scheme/ VAT New Payment Scheme. Here HMRC offered up to half a million businesses the option to defer VAT payments between 20 March 2020 and 30 June 2020 to the following tax year and gave the option to pay overdue VAT over smaller, interest- free instalments. Revenue Losses HMRC reported a decrease in revenue losses of £2.12bn from £4.08bn in 2019/20 to £1.96bn in 2020/21, this was due to the reduction in corporate insolvencies. Revenue losses occur when HMRC formally cease collection activity. The reduction in insolvencies was partly caused by the government measures to financially support businesses during the COVID-19 pandemic and the introduction of temporary restrictions on the use of statutory demands and winding-up petitions. For the period ended 31 March 2021, there were 9 cases (23 cases in 2019/20) where the loss exceeded £10 million, totalling £320 million (£634 million in 2019/20). There were six write-offs (19 cases in 2019 to 2020) relating to Insolvency, totalling £126 million (£391 million in 2019 to 2020). Although it is certain that large numbers of businesses would have failed had it not been for the introduction of government support measures, many of the measures have now ended, and HMRC will be facing pressure from the government to ensure the debts are collected. TTP Debt Levels Another reason for the debt levels increase is due to HMRC’s increased willingness to negotiate Time To Pay (TTP) arrangementswithbusinesses. Due to the volume of cases, HMRC set up teams dedicated to dealing with specific types and amounts of HMRC arrears. The teams initially agreed deferrals of tax arrears on the condition that businesses either pay off the debt in full or contact HMRC in the future to negotiate a TTP (i.e.- an affordable repayment plan over an agreed period). In the tax year 2020/21, HMRC negotiated approximately 70 60 50 40 30 20 10 0 23.6 25.6 22.1 18.6 13.3 12.2 13.3 16.3 13.0 17.5 18.2 19.1 22.4 57.5 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Overdue Debt (£bn’s) % of Tax Revenue HMRC Overdue Debt HMRC Overdue Debt % of Tax Revenue