HMRC reveals increase in bad debts to £6.4billion

The amount of money owed to the taxman, that HM Revenue and Customs (HMRC) no longer thinks it will recover, i.e. bad debt, has jumped by 40% in the last 12 months alone from £4.5bn to over £6.3bn.

Many business owners are worried that this widening hole will lead to much more aggressive debt collection tactics against businesses as the Government attempts to fill that hole.

The revelation came to light as HMRC starts the engaging private sector bailiffs to pursue it’s debts, as reported in the following Corporate Credit Debt Recovery blog post, “£1b tax debt outsourced to private debt recovery agencies“

The increase in bad debts is believed to have been primarily caused by the recession forcing more and more UK businesses to keep hold of monies they should be paying in taxes in an effort to bolster cash flow keep the business afloat.

HMRC may have built up unnecessary bad debts in the early days of its’ Time to Pay scheme which gave a bit of breathing space to businesses facing cash flow difficulties, who could defer payment of their obligations till a future date. However, whilst many businesses have come through the other side and have started to repay their obligations, many went out of business as they lost that battle to keep afloat, thereby leaving HMRC out of pocket.

It is thought that in the panic filled months following the collapse of Lehman Brothers and the resultant shockwave, that very generous terms were offered under the “time to pay” scheme by HMRC which led to some businesses getting extended credit terms that they should not have otherwise received. It has been suggested that HMRC is now overcompensating in the other direction by being more aggressive, phasing out the Time to Pay scheme, and in doing so trying to prevent more future bad debts

With an enormous 78% jump in the amount of National Insurance (NI) payments HMRC has subsequently written off trying to collect it seems that it has its work cut out, and that UK business needs to act now to reduce its own debtor days, increase their own small business debt recovery activities for non payers, bolster cash flow and avoid the wrath of HMRC.