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Insolvencies cost taxpayer £4.4bn 16 October 2014

Up to £4.4bn was lost by HMRC during 2012-13 due to “non-payment” of taxes in business and taxpayer insolvencies, according to the revenue’s latest Tax Gap Estimate report.

The figure represents 13% of the total tax gap during the year (£34bn).

Insolvency trade body R3 believes HMRC could reduce this figure by becoming more involved in the insolvency process.

Giles Frampton, president of R3, said: “HMRC is often the biggest creditor in an insolvency but they don’t always engage with the insolvency process.

“Input from experienced creditors can really help insolvency practitioners and Official Receivers bring back more money, not just for the taxpayer, but for all creditors.”

Insolvency professionals believe this total could rise as soon as next year due to the implementation of the 2012 Legal Aid, Sentencing and Punishment of Offenders Act (LAPSO).

Frampton said: “More concerning is the fact that, from next year, even more money will be lost by the taxpayer because of the government’s refusal to make insolvency litigation permanently exempt from the ‘Jackson’ legal reforms.”

“These reforms will make it incredibly difficult to fund insolvency practitioners’ attempts to get money back from rogue directors for creditors. Approximately, £300m worth of creditors’ money is pursued every year at the moment, including £70m owed to taxpayers.”

“The government is shooting itself in the foot by not making insolvency litigation’s temporary Jackson exemption permanent. From next April, up to £70m of taxpayers’ money could stay in rogue directors’ hands.”

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