25/08/2011 03:20 BST | Updated 24/10/2011 06:12 BST

HMRC Fails To Collect Billions In Tax

HM Revenue and Customs (HMRC) failed to collect £27.4bn of tax in the last five financial years, according to a report published by the Taxpayers' Alliance and the Institute of Directors. That’s over £1,000 per household.

At least £4.4 billion has been lost in income tax alone, according to the report, published on Thursday. The amount of income tax lost in 2010-11 was 52 per cent higher than it was in 2006-07.

The report focuses on billions lost through remissions and write-offs. Remissions are debts that could be recovered, but have been dismissed due to value for money or internal errors. Write-offs are debts which are irrecoverable - for example if a company goes bankrupt.

HMRC says that the recession may be a major factor in accounting for this loss. A spokesperson for HMRC said: “90 per cent of this tax is owed by liquidated companies, so in accordance with company law, we have no legal entitlement to get that money back”.

The report also blames the economy. The authors say that “big increases in lost tax may in part be explained by recessionary pressures on individuals and businesses”.

It is likely to add to the ongoing debate on whether HMRC should be serving winding-up orders on ailing companies, or whether it should be extending the Time To Pay scheme introduced by the previous government at the height of the recession.

Initially HMRC supported ailing businesses by allowing them flexibility with their tax payments. This was to ensure that bankruptcy was avoided in otherwise healthy firms unable to borrow due to the credit crunch. More recently a tougher stance has been detected at HMRC, not just with the change of government. In 2010 the number of Time To Pay agreements fell dramatically. By the first quarter of 2011 the number of agreements fell to just 32,000 - half the number issued in the same quarter the year before.

The changes coincide with a large rise in the number of winding-up petitions issued by HMRC.

A few weeks ago HMRC announced it was ending the publication of the number of Time To Pay agreements, saying it had consulted on doing so, and nobody had raised any objections.

Richard Baron, who formerly worked for HMRC and now the Institute of Directors' Head of Taxation said: “The Revenue should always be ready to talk to a company in difficulty about allowing a delay in payment, so as to avoid driving the company out of business. The Revenue were very good about this at the start of the recession, with their 'Time to Pay' programme. They have wound that programme down to a much smaller scale since. Given the slowness of the recovery, they should look at expanding it again.”

HMRC has faced a number of highly publicised debacles since its merger formation in 2005, from mailing out private details to thousands of people to its blunder last month where taxpayers failed to receive postal reminders because HMRC forgot to order enough paper.

A report published by the Treasury Select Committee last month was also highly critical of HMRC’s performance, highlighting mounting concerns by small and large businesses that it's often difficult to get a straight answer out of the government on tax enquiries.

Responding to the Tax Payers' Alliance report, Labour's Shadow Financial Secretary to the Treasury, Chris Leslie MP said: "HMRC need to be doing more to ensure revenues are collected, not only to reduce the deficit but to ensure we have resources for vital public services."