Within the backlog are underpayments of approximately £2BN.
Exchequer Secretary, David Gauke, was very clear recently in Parliament stating that:
"Being left with the worst deficit in peacetime history means we simply cannot afford to write off all of these underpayments."
As ever with politicians, words and reality do not always match.
The fundamental issue facing HMRC is that they have to perform a cost benefit analysis to determine as to whether their resources (time, manpower and money) that they will need to use to chase up these debts will be actually "adding value" in recovering this debt.
In simple terms, will the debt recovered exceed the costs of actually recovering it?
Given the age of some of the debt taxpayers could mount a legal challenge against any recovery effort by HMRC, which in turn would cost HMRC (wrt time, effort and legal fees) were HMRC to stand its ground.
Like it or not, whatever the politicians and shouty media say, this is a simple matter of weighing up costs vs returns.
The BBC have quoted an unnamed HMRC employee:
"For each underpayment there are thousands of pounds owed. Underpayments are very frustrating.
If we had the chance to sort it out three years ago we could have recovered the money. It is now likely to be written off if it's over two years – we're not looking at underpayments beyond two years.
Our directors are telling people that [those who owe tax] will appeal and fight it and this will generate more work."
The BBC report estimates a write off of around £1.5BN.
Whilst it is quite correct to argue that HMRC should not have found itself in this situation, it is not correct for the politicians (who have totally "buggered" HMRC up over the years) and shouty media to start moaning at HMRC for making a perfectly correct financial assessment that if the costs of recovery exceed the returns then the debt should be written off.
Financial reality and politicians' soundbites do not always match.
Tax does have to be taxing.
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