Recent reports have revealed that the HMRC has spent more than £84m on using Private Debt Collectors in the three tax years up to 2019-2020.
When tax bills go unpaid, the HMRC has the option to utilise external private debt collection agencies to help chase the debts on behalf of the crown. Companies then start dunning and chase individuals that have outstanding tax liabilities.
The HMRC uses a number of Debt Collection Agencies on its behalf. When the matter is passed over to the agency, they contact the debtor requesting payment is made to the agency directly.
In 2017/18, HMRC spent £32m on DCAs, with £1.71m being spent on final opportunity letters.
In 2018/19, HMRC spent £26m on DCAs, with £1.3m being spent on final opportunity letters.
In 2019/20, HMRC spent £26.1m on DCAs, with £1.24m being spent on final opportunity letters.
Over the three tax years, this figure adds up to more than £84m from the public purse.
Jesse Norman, financial secretary to the treasury, revealed the figures and said: “As part of their overall collections strategy, debt collection agencies (DCAs) provide HMRC with additional capacity.
“The department keeps under review the cost effectiveness and value for money that using DCAs provides to the exchequer and UK citizens. There are no current plans to move away from using agencies to send final opportunity letters.”
An HMRC spokesperson added: “By engaging directly with customers on HMRC’s behalf, DCAs have helped and supported thousands into affordable payment plans. Regulated by the FCA, all DCAs follow strict code of conduct and HMRC approved guidelines for dealing with our customers.
“They don’t make any visits or take enforcement action on behalf of the department. All contact is by letter, SMS or phone. And over the last few years DCAs have contributed directly to HMRC’s improving performance towards reducing the tax gap – the difference between what tax is owed and how much of it is paid.”
The government’s own debt recovery practices are often lagging behind more innovative strategies used by private debt collection firms.
Jane Tully, a director of the Money Advice Trust said “More and more people were struggling to pay debts owed to government even before Covid-19. As the financial impact of the outbreak continues to hit households hard, this number is likely to increase further”
The has been a huge spike in accumulated debt since the pandemic began with further fluctuations expected.