HMRC to increase use of debt collection companies

The head of HMRC has told MPs that there are plans to increase its work with private sector debt collectors to tackle the UK’s current tax debt and improve its services in the long term

In a Public Accounts Committee (PAC) meeting yesterday, HMRC’s chief executive Jim Harra stated that the increased use of private sector debt collectors has made it ‘easier’ for him to plug the staff shortfall at the tax office and will be an important tool in reducing the UK’s current tax debt.

The meeting, which also featured HMRC’s director debt management Marc Gill and chief finance officer Justin Holiday, focused on the National Audit Office’s Managing tax debt through the pandemic report, which highlighted that following the Covid-19 pandemic the UK’s tax debt increased from £16bn in January 2020 to £42bn in September 2021.

The meeting opened with HMRC clarifying that it does not have a statute of limitations to tax debts and would not write them off after a specific time frame as the ‘nature of the arrangements’ does take a long period of time to pay a debt off.

Harra explained to MPs on the committee that HMRC has a process for tax debts which are split into two categories with debts that are ‘not realistically collectible as it uneconomic’ and those which are ‘worthwhile in pursuing’.

When asked how well the department acted during the pandemic, Harra praised the department and stated that HMRC had been ‘very adaptable’ and that the halting of all ‘enforcement activities’ and shifting to a more empathetic approach in supporting and reassuring taxpayers, both individual and businesses, who could not pay or needed time to pay, was the ‘right approach’ in response to the crisis even though it drove the tax debt to its peak of £67bn in August 2020.

HMRC stated that after reintroducing its enforcement activities it quickly managed to drive down the tax debt from September to November 2021, however, the Omicron variant and the introduction of Plan B has slowed down the collection which will result in it not hitting its £33bn target by March 2022.

Harra told the committee that it would be ‘nicer to be closer to the £33bn however it will more likely be closer to the £39bn’.

The Committee highlighted that HMRC’s current staffing levels could be seen as a ‘significant hindrance’ in its tax collection work ‘considering the size of the job at hand’, citing the NAO report which stated that HMRC would see a shortfall of around 300 full time staff with 1,000 expected to leave the department over the next three years.

Harra responded by stating that the department would have 600 more staff than it would have had due to recent funding from the Treasury with HRMC having an ‘ambitious plan’ to increase its private-sector partnerships with a budget of £26m annually over the next few years.

The committee highlighted that rate of return from using private sector debt collectors, with the NAO report stating that in 2019-21 private sector debt collection agencies had collected £466.8m in tax which is around an £18 return for every £1 spent. HMRC confirmed that it is a ‘like for like comparison with HRMC collecting around £20 for every £1 spent’. The Committee also included evidence from the collection company Equifax who had collected £2.3bn for HMRC.

Gill stated that ‘as the return on investment is so strong’ it is working on a more flexible working model when it comes to contracts and partnerships which HMRC believes ‘will allow them to go further in its debt collection’.

The Committee asked the panel to explain what outsourcing brings that HMRC’s inhouse team cannot offer, with Holiday stating that the three main reasons were that outsourcing was ‘more flexible with bursts of activity at different times, that they specialise in specific areas of debt collection which helps recover more, and that by outsourcing HMRC can use it to compare its services to market performance’.

Harra added: ‘HRMC is efficient inhouse as it is, though I can increase my capacity when I need to, as to hire and train all of the people that it needs is a massive strain on us which we don’t need. Using private sector companies allows the strain to be taken off our department as it’s easier and quicker to pay companies with the skills, data and know how to do the job there and then.’

Harra confirmed that HRMC provides a step-by-step guide to how private companies approach taxpayers stating that HMRC has exhausted its internal debt process with taxpayers before it hands the case over to the private sector.

To conclude the meeting, the Committee asked what future plans the tax authority has to improve its debt collection capability. HMRC stated that it has ambitious medium-term plans to centralise its debt data, which would include data from other government departments, to make more targeted decisions when it comes to taxpayers.

Gill added: ‘If we can see that a business does not pay until a representative pays a visit then why should we bother sending four letters? We would just send someone there.’

The department however confirmed it will not be able to create a single customer record for ach taxpayer, which includes all data from all government departments and private sector companies, within the next three years, with Harra stating: ‘This is the long-term plan that we will be able to achieve eventually.’

HMRC also confirmed that it is trialling paying private sector companies for access to certain types of data such as personal credit file information, which it can use to help support taxpayers when setting up time to pay arrangements.

Gill concluded: ‘The private sector cannot do it better than we can, however, the blend of the private and public sector makes us the biggest and the best department in government’.