HM Revenue & Customs has dramatically ramped up its use of private debt collection firms, spending more than £5 million in a single month as the government steps up efforts to claw back billions in unpaid taxes — with small businesses bearing the heaviest burden.
Figures reveal that HMRC’s payments to TDX, the debt recovery coordinator it uses to manage multiple collection agencies, climbed to £5.2 million in February 2026 — a jump of 73% compared to January. Across the five months from October 2025 to February 2026, the total bill came to £21.1 million. TDX, a subsidiary of credit giant Equifax, acts as a central hub, directing a network of agencies to pursue outstanding tax from both individuals and businesses.
The surge in spending is consistent with Chancellor Rachel Reeves’ stated ambition to raise an additional £5 billion a year through tougher tax enforcement. Critics, however, are questioning whether the approach is striking the right balance — particularly at a time when many firms are already stretched to breaking point.
Small Businesses Caught in the Crossfire
Government data paints a stark picture of who owes what. Small firms account for around 60% of all outstanding tax, compared with just 5% attributable to high-net-worth individuals. Business groups say that piling enforcement pressure on top of an already difficult operating environment risks pushing many smaller enterprises over the edge.
The past year has seen a perfect storm for sme owners — higher employer National Insurance contributions, revalued business rates, rising interest costs, and the withdrawal of Covid-era support have all hit simultaneously. For many, cashflow is genuinely tight rather than a matter of evasion, and trade bodies argue that deploying private collectors in these circumstances risks inflicting lasting damage on enterprises that might otherwise survive with a little more time and understanding.
One industry voice put it bluntly, saying the increasing use of external debt collection agencies “rubs salt in the wound” for firms already grappling with costs that have risen sharply on multiple fronts.
Corporate Distress at Alarming Levels
The broader UK economic picture reinforces those concerns. Research from Begbies Traynor Group shows that the number of UK companies facing critical financial distress rose by more than a third year-on-year in early 2026. The hospitality, leisure, and culture sectors are among the worst affected, squeezed by higher staffing costs, weaker consumer confidence, and continued inflation in energy and raw materials — pressures that have been amplified by instability in the Middle East.
Calls to Rethink the Approach
Tax professionals are urging HMRC to reconsider how it handles struggling debtors. Lucy Sauvage of Alvarez & Marsal Tax called on the revenue authority to make itself more approachable, invest in empathetic debt counselling, and offer more flexible repayment arrangements to those in genuine difficulty. She warned that current methods can tip too readily into overzealous enforcement, particularly when late payment is a symptom of financial hardship rather than deliberate avoidance.
With HMRC’s total outstanding tax debt running into tens of billions of pounds, the pressure to collect is understandable. But with corporate distress rising and small business confidence fragile, the debate over how hard and how fast to push is only likely to intensify in the months ahead given the state of the UK economy.
