BDO warns HMRC still has ‘a mountain to climb’ to collect £48bn in unpaid taxes

BDO has warned there is still “a mountain to climb” to collect £48bn in unpaid taxes, after HMRC announced the interest rate applied to the late payment of tax rises to 7.5% today (11 July 2023), the highest level in 15 years.

The increase comes as HMRC seeks to get tougher on late payers.

BDO said HMRC is currently under significant pressure to recover outstanding tax debt.

The latest figures released in February this year revealed that the level of tax debt owed to HMRC rose by 22% year-on-year to reach more than £48bn as at 31 December 2022.

The total debt comprised £7.8bn of ‘managed debt’ and £40.3bn in debt available for pursuit.

While the numbers of taxpayers in Time to Pay arrangements fell by 14% over the previous year to 730,617 at the end of December 2022, the level of managed debt rose considerably by 88% to £7.8bn, up from 4.1bn in December 2021.

Last week, the tax authority issued updated guidance which warns taxpayers that it may adjust their tax codes to collect up to 50% of gross income in order to recoup outstanding debts.

While the latest initiative is a sign to get tougher on tax debtors, BDO believes there is still a mountain to climb.

Dawn Register, head of Tax Dispute Resolution at BDO, said that HMRC is under huge pressure to reduce the £48bn in outstanding tax that remains unpaid but it continues to be “hamstrung by a lack of resources”.

She added: “While some may have got used to paying modest interest rates on late payments in the past, the current rate of 7.5% can come as a real shock. As the late payment interest rate tracks 2.5 percentage points above the base rate, there is always the possibility that this will rise even further.

“In an effort to get tougher on the late payers, the tax authority is now warning people that it may tax up to half of their gross income via their tax code if they don’t pay their bills on time. This would be very unwelcome to most taxpayers and could seriously affect someone’s ability to meet their living costs.”

She concluded: “We would always advise those in genuine financial difficulty and unable to pay on time to seek an affordable Time to Pay arrangement with HMRC. The Government should consider further investment in HMRC’s debt management unit to help it collect what’s due and boost the public offers.”