HM Revenue & Customs last year doubled the amount spent on debt collection agencies in respect of the collection of unpaid tax.
In 2011, it spent a total of £5.8m using these debt collection agencies, but this has jumped to £13.4m in 2012, according to UHY Hacker Young, the national accountancy group.
“HMRC is under a lot of pressure to increase its tax take, and bringing in professional debt collection agencies to follow up on debts is seen as a cost effective,” says Mark Giddens, head of private client services at UHY Hacker Young.
Giddens said that while HMRC has a responsibility to collect its tax debt, he questioned whether the taxpayer might suffer as a result.
“The less professional end of the debt collection market has a reputation for being over-zealous and trying to collect the debt no matter what,” he warned.
“On top of this, communication between the different parts of HMRC can occasionally break down, with in-house teams pursuing taxpayers for debts that have already been paid or aren’t owed in the first place. It’s important that HMRC gives debt collection agencies the correct information to work from.”
UHY Hacker Young adds that the use of external debt collection agencies could make it harder for taxpayers to challenge an incorrect demand for a debt repayment by HMRC. This is because third-party debt collectors would need to be instructed by the tax authority to stop pursuing that debt.
HMRC began an external debt collection agency pilot scheme in 2009, appointing four agencies from July 2010 with a plan of increasing the number of agencies in use to 10 in 2012. Increased use of external debt collection agencies helped bring in £111.3m of debt in 2011-12, said HMRC – an estimated £70.5m extra on top of what would otherwise have been collected.
It also emerged this week that tax advisers have lost faith in HMRC’s ability to resolve unpaid tax disputes efficiently.
The majority of advisers surveyed in a report by PKF Accountants reported that their experience and perception of HMRC’s new disclosure facilities and procedures was unsatisfactory.
“Ever since the Inland Revenue and HM Customs & Excise merged to create HMRC in 2005, the powers the organisation has to investigate taxpayers and penalise them for wrongdoing have broadened and increased,” says Paul Clarke, a tax investigations partner at PKF.
“The low take-up and perception of HMRC’s new procedures is perhaps indicative of a high level of residual mistrust between advisers and the taxman, which makes it difficult to resolve any inquiry or investigation in a fast and efficient manner.”
He said the inevitable result is a backlog of appeals, with some cases taking years to get to tribunal. “Building trust is a slow process, especially in the arena of tax investigations, but an entirely open and cooperative approach from HMRC when dealing with a tax investigation or dispute, as envisaged under its ‘openess and early dialogue’ policy, will benefit all concerned by speeding up the process.”
Advisers believe HMRC should step up its training, amend its guidelines where appropriate, monitor the quality of initial investigation approaches and publish the results so progress can be assessed.