Report to: Portfolio Holder for Property,
Finance and Commissioning
Subject:
Write Off of Bad Debts – 2014/15
Status:
Open
December 2014
Report Ref:
Ward(s):
All
Key Decision:
No
Key Decision Ref:
Report of:
Head of Resources
Contact:
Phillip Hood, Management Accounting Manager e-mail
Phillip.hood@basingstoke.gov.uk or 01256 845660
Appendices:
Confidential Appendix 1 - Housing Benefit Debts
Confidential Appendix 2 – Business Rates Debts
Confidential Appendix 3 - Property Debts
Confidential Appendix 4 - Sundry Debts
Papers relied on to
produce this report
None
SUMMARY
1
This Report
1.1
This report sets out irrecoverable individual debts of over £2,000, or £10,000 for
local tax, which are recommended for write-off in accordance with the council’s
financial regulations.
2
Recommendation
It is recommended that:
2.1
Housing benefit debts totalling £8,744 be written off as set out in confidential
Appendix 1.
2.2
Business rates debts totalling £69,555 be written off as set out in confidential
Appendix 2.
2.3
Property debts totalling £21,576 including VAT be written off as set out in
confidential Appendix 3.
2.4
Sundry debts totalling £2,249 including VAT be written off as set out in
confidential Appendix 4.
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PRIORITIES, IMPACTS AND RISKS
Contribution to Council Priorities
This report accords with the council’s Policy and Budget Framework and
supports the development of an effective and efficient council.
MAIN CONSIDERATIONS
3
Introduction
3.1
As part of the council’s debt management process, a report is produced
annually to write off irrecoverable bad debts once all reasonable recovery
procedures have been exhausted. The council’s financial policies ensure that
an appropriate level of bad debt provision is maintained to finance these write
offs.
3.2
Heads of Service have delegated authority to write-off individual debts under
£2,000 (or £10,000 for local tax) but any larger debt write-offs require the
approval of the Portfolio Holder for Property, Finance and Commissioning.
3.3
This report provides details of the total amount of debt written off under
delegated powers during the first half of the year (i.e. up to 30 th September
2014) and then sets out the debts which are recommended for portfolio holder.
3.4
Following last year’s completion of a comprehensive exercise to analyse and
where appropriate write-off large volumes of historic debts, the level of debt
write-offs has reduced significantly during 2014/15. For example recommended
write-offs for business rates have reduced from £173,363 to £69,555 and for
housing benefit overpayments recommended write-offs have reduced from
£78,491 to £8,744.
3.5
Over the past two years the Local Tax Team have made some large strides
forwards and last year collected 98.5% of council tax and 98.6% business rates
due in the year. An Audit Commission report published in November 2014
shows that this is top quartile performance for a district council. The council is
also now dealing with 94% of all correspondence within 5 working days which
means that billing can take place without unnecessary delay and recovery is
more proactive.
3.6
A number of improvements have recently been introduced to debt recovery
procedures including more severe remedies for Council Tax and Business
Rates that are producing excellent results. During the first half of the year there
were 5 committal courts with 17 people at risk of being sent to prison. Cash
totalling £25,692 was collected from 11 residents, 5 people were given
suspended prison sentences and 4 warrants of arrest were issued. Telephone
debt recovery is also being carried out to increase payments and inform
debtors that recovery action will be taken and visits are being made to business
rates debtors.
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4
Write-offs Agreed Under Delegated Powers
4.1
In addition to the amounts recommended for write-off by the portfolio holder,
debts totalling £50,573 were written off under delegated powers between 1st
April 2014 and 30th September 2014. As shown in the table below, this is a
significant reduction from last year’s equivalent figure of £364,052. As
explained above, this is partly due to completion of work last year to review the
accumulation of historic debts, but enhancements to the local tax system have
also enabled the write-off of credit balances of £121,687 in business rates and
£71,710 in council tax relating to closed accounts where there is no trace and
the council is unable to make repayments.
4.2
Unclaimed credits for council tax typically relate to closed accounts where
people have moved out without applying for a refund of council tax paid in
advance and have provided no forwarding address or bank account details to
enable us to refund them. These people are issued with credit bills on several
occasions. Credits may also be created through property banding changes by
the Valuation Office, which can be backdated to 1991 and again there are no
details of the whereabouts of the tax payer on closed accounts. When people
with unclaimed credits cannot be traced, these balances will be written off.
4.3
Write off credits for non domestic rates (NDR) are similar to the above and
usually arise where a business is no longer trading or there are changes in
business rates liability or rateable values which mean that credits become
available but there is no trace of the company or they no longer exist.
4.4
It should be noted that the figures below for council tax and business rates
show the total debt written off rather than just this council’s element. The cost of
council tax write-offs are shared by all precepting bodies (BDBC, HCC, fire and
police) and this council bears approximately 9% of the amount written off.
Following the introduction of the new business rates retention scheme in 2013,
the council now bears approximately 40% of the cost of any business rates
write-offs.
Summary of Debts Written-off Under Delegated Powers:
2014/15
£
Reason
Housing & Council Tax Benefit:
- non-invoiced recovery from on-going benefit
- invoiced recovery where benefits ceased
Car Parking
Council Tax
Sundry Debtors
Property Rents
Business Rates
Total
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2013/14
£
42,701
8,350
23,350
21,764
14,925
891
-61,408
41,454
87,233
19,479
169,141
2,617
511
43,617
50,573
364,052
4.5
The reasons for the delegated write offs in 2014/15 were as follows:
Housing & Council Tax Benefit:
Reason
£
Non-invoiced
£
Invoiced
£
Total
Non recoverable
Hardship/LA discretion
Bankruptcy
Appeals
Uneconomic to pursue
Untraceable
Deceased
Joint debt approach
Prison
20,696
15,255
1,343
2,556
1,860
246
0
746
0
0
241
2,016
0
333
4,098
1,078
107
476
20,696
15,496
3,359
2,556
2,194
4,344
1,078
853
476
Total
42,701
8,350
51,052
Car Parking:
Between 1st April 2014 and 30th September 2014, a total of £23,350 was
written off in respect of 270 Penalty Charge Notices (PCNs) that the bailiffs
were unable to recover. An unpaid PCN is only written off, as opposed to
cancelled, once it is registered at the County Court i.e. once all possible
avenues of challenge open to the vehicle owner are exhausted. The number of
write-offs increased by 20% or £3,871 compared to the same period in 2013/14
due to approximately 160 ‘warrants of recovery’ being returned in quarter 2 by a
debt collection agency as unable to trace. As they had also exceeded the
prescribed statutory time limit of 12 months these warrants were not
recoverable. The agency concerned have now been reminded that any
uncollected warrants should be returned after 6 months so that there is time to
send them to an alternative enforcement agency for a second attempt at
recovery before they expire.
Council Tax:
Reason
£
Unable to trace (*)
Bankruptcy etc
Other
Hardship/LA discretion
Uneconomic to pursue
Joint debt approach
Deceased
Credits written off
50,058
13,030
11,457
9,014
6,565
2,079
1,273
-71,710
Total
21,764
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* The council uses a software tool to trace for all returned mail or if it is aware that someone
has “gone away”. If searches come back successful and a new address is found, then
documents are resent. The council also employs a tracing agent to find absconders and has
recently introduced a new tracing agent similar to that used by the council’s fraud team.
Sundry Debtors:
Reason
£
Debtors Whereabouts unknown
Judgement Unenforceable
Uneconomic to pursue
Other Reason
Hardship
Company in Liquidation
10,865
1,162
849
833
756
460
Total
14,925
Business Rates:
Reason
£
Irrecoverable
Bankruptcy etc
Uneconomic to pursue
Individual voluntary arrangements
Unable to trace
Unclaimed credits
-
26,405
21,558
6,123
3,683
2,509
121,687
Total
-
61,408
The council has recently introduced a new system to obtain information on the financial
standing of new businesses and is using this information to tailor recovery action. Recovery
actions also now include visits to businesses to promote discounts and collect rates. A new
tracing agent for business rates is being piloted this year which provides greater scope to locate
businesses.
5
5.1
Housing Benefit Write-offs Recommended for Write-off
Overpaid benefit generally occurs for 3 reasons:
(i) the customer delays advising the council of a change in their circumstances.
(ii) claimants fraudulently claim housing and/or council tax benefit to which they
are not entitled.
(iii) the council delay the reassessment of a change of circumstances.
5.2
These debts can be recovered if the claimant would have known that they were
receiving too much benefit e.g. an increase in salary. When the debt has been
created as a result of a local authority error that the customer would not be
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expected to realise, these are non-recoverable as prescribed in the Housing
Benefit regulations.
5.3
Overpaid benefit is recovered via deductions from on-going benefit entitlement
where housing benefit is still in payment. The maximum deductions allowed are
prescribed by Government. In cases where entitlement to benefit has ceased,
the debt is recovered via the sundry debt system which is within the local tax
and benefits system (Civica Open Revenues) and is the responsibility of the
Exchequer Team to collect.
5.4
Recovery action on overpayments is undertaken in accordance with Housing
Benefit Regulations, and the council’s joint debt approach which has been
agreed with Internal Audit. This can involve issuing reminders followed by
referral to court or a debt collection agency.
5.5
At the time the overpayment is identified, the customer is given a statutory
notice advising them of the reasons for the overpayment, an invoice informing
them of the amount overpaid and methods of repayment available, together
with information on their statutory right to appeal against the calculation.
5.6
Recovery action is withheld until the period of appeal has expired. A County
Court Judgement (CCJ) can then be applied for or the debt can be referred to a
collection agent (DCA). The Exchequer Team use information obtained from
Civica Open Revenues to analyse the individual debts, develop a
collection/recovery process and collection targets, and monitor the
effectiveness of these processes.
5.7
Debts which have been created during the current financial year are recovered
in accordance with a recovery action timetable, which ensures that unpaid
amounts are referred to a debt collection agency within 10 weeks of the invoice
being issued.
5.8
In addition to the write-offs under £2,000 set out in section 4 above, there are
three debts totalling £8,744 that are recommended for write-off. These are
detailed in Appendix 1, along with an explanation of the reason for the write-off.
The last case for £2,117 relates to an individual who was still in receipt of
benefit but in other two cases entitlement to benefit has ceased.
6
Business Rates Recommended for Write-off
6.1
As detailed in Confidential Appendix 2 there are three debts of over £10,000 for
business rates which are recommended for write-off, for the reasons
explained. The total value of these write-offs is £69,555.
6.2
The cost of these write-offs is shared between all precepting bodies (BDBC,
HCC, fire and police) and the government, with this council’s proportion being
40% or £27,822.
6.3
To put the level of business rates write-offs in context, a total of approximately
£73 million is due to be collected each year and write-offs, including those
authorised by officers under delegated powers, amount to approximately
0.01%. Where write-offs are due to bankruptcy or liquidation, the Council
remains as a registered creditor should there be any pay-out in the future.
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7
Property Debt Write-offs Recommended for Write-off
7.1
The Property Services Manager ensures that every effort is taken to check the
financial stability of potential tenants before a tenancy is granted, or a lease
assignment approved, including examination of accounts, bank references,
trade and landlord references and the use of rent deposits and guarantors, as
appropriate to the circumstances. The payment records of tenants are
constantly monitored, and both reminders and statements are issued.
7.2
If it becomes evident that a tenant is falling behind with payments they are
contacted by a management surveyor, from Property Services, any problems
are discussed, and the matter is pursued until a solution is reached. This may
result in action such as agreement of a payment plan, charging interest, setting
up standing order arrangements, using rent deposits, sending in the bailiffs,
pursuing under tenants or previous tenants or guarantors, or re-possessing the
premises.
7.3
Should these measures have no effect the matter is referred to the Head of
Legal and Democratic Services for legal action for repayment of the debt with
or without repossession of the premises.
7.4
In most cases these measures are sufficient to address the problem but
inevitably some businesses fail. Businesses and individuals may file for
bankruptcy, firms may go in to administration or liquidation and occasionally a
tenant may become untraceable.
7.5
Procedures are in place to attempt to recover outstanding debts, which can
extend over a number of years. However, there comes a time when it is clearly
futile and uneconomic to attempt further recovery action and the debts are
recommended for write off.
7.6
Where businesses fail either the Head of Resources or the Head of
Governance deal with the administrator/liquidator as appropriate to register our
debt and ascertain whether there are any funds to meet outstanding debts.
7.7
A review of bad debts has recently been undertaken across the Council’s
property portfolio, to establish which debts are unrecoverable and should be
written off. This has identified four debts, detailed in Appendix 3, totalling
£21,576 which are recommended for write off. This includes VAT of £3,596
which the council can reclaim. Write-offs amount to approximately 0.1% of
commercial property income, managed by Property and Facilities Management,
which totals £15.2m.
7.8
Where write offs relate to company failures, contact with the administrator is
maintained by Legal Services. Unless the council will lose the ability to reclaim
VAT on write-offs because they are more four and a half years old, the council
only agrees to a write off when a formal letter is received, stating that there will
not be any distribution of funds to creditors. There are several cases on going
with administrators where the council is unlikely to receive any money but until
this is certain they will not be written off.
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8
Options Analysis
8.1
The council does have the option of writing off more or less debt than is
recommended by officers.
8.2
However, officers have undertaken an analysis of all outstanding debts and are
recommending the write-offs listed in the appendices for the reasons explained.
8.3
Such action does not, of course, prevent the debt being resurrected and
pursued if new information comes to light in the future.
9
Financial Implications
9.1
The council’s financial policies ensure that sufficient bad debt provisions are
maintained and included in the council’s accounts each year. A 100% bad debt
provision is maintained for all housing benefit overpayment debtors and for
property and sundry debts over three months old.
9.2
The bad debt provisions are sufficient to meet the cost of the recommended
write offs as detailed in the table below. The bad debt provisions are
reassessed annually as part of the final accounts process to ensure appropriate
levels are maintained.
Bad Debt Write Off Provision
Bad Debt
Provision at
31/3/2014
Recommended
Write-offs (excl
VAT)
Write-offs Agreed
Under Delegated
Powers
Balance of
Provision After
Recommended
Write-offs
£'000
£'000
£'000
£'000
Property rents
Sundry Debtors/Car Parking
Hsg & CTax Benefit
Council Tax
Business Rates
10
371
257
1,422
2,308
600
4,958
18
2
9
0
173
202
1
38
51
22
-61
51
Risk Issues
10.1 In order to ensure that debt collection levels are maintained at a high level, it is
important to ensure that Council policy is to rigorously pursue debts and only to
write debts off when all reasonable recovery actions have been taken and they
become uneconomic to pursue.
11
Corporate Issues
11.1 Human Resources (HR) Issues
11.1.1 There are no HR issues.
11.2 Equalities Issues
11.2.1 There are no equalities issues.
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352
217
1362
2286
488
4,705
11.2.2 Legal Implications
11.2.3 There are no legal implications.
11.3 Any Other Implications
11.3.1 None
12
Communication and Consultation
12.1 The council will communicate its drive to recover debts and that writing off
debts is a last resort only when pursuing them is no longer financially viable.
13
Portfolio Holder Comments
13.1 I am pleased to see the continued progress in our collection rates as a council.
The much lower level of debt write offs is also a positive sign and demonstrates
this council's determination to ensure that those who benefit from our services
do so properly and pay their share of the costs in council tax etc. Making
provision for write offs is never welcome but I am pleased that these are now
much lower at, for example, 40% of the previous level for business rates and
only 11% of previous council tax write offs
14
Conclusion
14.1 This report recommends that the debts contained in the attached appendices
are approved for write-off by the portfolio holder as all reasonable actions have
been taken to recover the debts and it is uneconomic to pursue them further.
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