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Tax farming: Debt collection agencies explained

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18th Mar 2013
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The law relating to debt collection agencies is straightforward: An agent must be able to provide a copy of instructions from the principal debtor, instructing the agency to collect the debt, and stating the amount of the debt collectable, explains David Gordon.

It is not sufficient to provide a letter on the agency’s notepaper, saying “We have been instructed…” I repeat, upon request of the debtor or his agent, the agency must produce a copy of clear instruction from the principal. Further the principal must have advised the debtor that it was placing the debt in the hands of a debt collector, naming the debt collector.

No “ifs” no “buts”, proof of entitlement to collect must be available, and be produced if asked for.

To attempt to collect and or extract money from a third party, (that is, the person purports to be agent collecting for the debtor, the party to whom the funds are due) except and unless the collector is able to produce formal proof of instruction, is an unlawful action.

According to information provided to me by an experienced police officer, unless the collector is able to provide the proof described, it is harassment. In the case involved, the police officer offered to call on the debt collection agency.

Remedy in law is available through the protection from harassment legislation. Further that law was amended so that the victim has only to show that “anxiety” was caused by the party doing the harassing. It is not a defence for the collector to show that the claim is a legally due claim.

The remedy is simple. HMRC should always send a letter to the alleged defaulter saying “HMRC has instructed x to collect a debt due of £y”, and x must be able to produce its letter of instruction.

Professional indemnity

Form 64-8 authorises HMRC to deal with the agent. It does not make any reference to any third party that HMRC may or may not purport to instruct. It is well established that the client is advised and believes that that is the sole purpose of the 64-8. Nowhere is the client informed that this authority purports to give the accountant permission to talk to a debt collector on the taxpayer’s behalf. Especially, where the accountant does not have proof in acceptable format of the debt collector’s right to pursue. According to PI rules and professional ethics, if an accountant passes any information whatsoever on to a third party, except and unless he has a proper instruction from the client. The client may claim against the accountant’s PI policy. That the client may well be a defaulting taxpayer is irrelevant.

Banks, building societies, solicitors, insurance companies, and HMRC require signed instructions before passing on any information. It works both ways.

Example case: N & HMRC

During a bitter family dispute, N received a letter purporting to come from HMRC, instructing him to immediately pay a sum of money to designated bank account in favour of HMRC, otherwise N was at risk of immediately going to jail.

The letter appeared to be on HMRC paper, and was most plausible. It was only because of the client’s particular circumstances, and something about the name of the signatory that we were concerned, writes David Gordon.

It turned out that the letter was a forgery, and that the name happened to be an HMRC person whose name was appended to HMRC public relations paperwork.

In fact we advised HMRC, we also advised them of  the name of the likely perpetrator of this serious fraud.

HMRC, true to its current reputation did nothing at all about it, apart from telling my client not to worry. The perpetrator was not even contacted by HMRC.

It is a moot point whether under data protection law, HMRC is entitled to pass taxpayer’s addresses, and or telephone numbers on to third parties, except and unless due procedure has been followed.

It is unacceptable for a debt collector to phone my office at least half-a-dozen times, demanding to speak to the director of X Ltd, and demanding “proof of identity”, yet not being prepared to provide same.

Regrettably neither the ICAEW nor the ACCA are prepared to deal with this abuse of power. Discussing it in a “Working Together” party over a cup of tea will not do. Further the bully boy tactics of some of these callers puts me in mind of Rachman [Peter Rachman, notorious Notting Hill landlord in the 1950s/60s].

This is doing tremendous harm to HMRC’s reputation. If you treat people, even awkward people in this way, word gets around.

It is not productive to spend millions on convincing the “customer” that you are a reasonable person only trying to do your job, and at the same time behave in a factually similar fashion to Pontius Pilate.

The community response

In January the ICAEW Tax Faculty raised a number of concerns with HMRC over changes to the operation of its Debt Management and Banking (DMB) service.

The main issues raised were a lack of consultation with professional bodies prior to the introduction of operational changes; lack of communication between HMRC and outside agencies it uses to collect outstanding tax; and letters from HMRC to taxpayers were often unnecessarily threatening.

AccountingWEB member carnmores commented that the outside agencies are a shower, “in particular the information they have is often months out of date and threats are made under this false information.”

Another member, kevinh.peterhunt.co.uk, raised a similar issue in a separate thread after he encountered problems with HMRC’s Debt Management Debt Enforcement Unit.

The enforcement unit refused to accept his claim that payments on account had been incorrectly allocated and were aggressively pursuing his client for payment.

zeofiles made the point that the debt management system was not linked to the rest of the HMRC system.

“Quite often we find debt management chasing a penalty that has either been appealed or has been removed following an appeal. It appears the only communication debt management routinely receive is the instruction to collect outstanding amounts,” he said.

Malcolm McFarlin also said he found HMRC DMU's to be “aggressive and unhelpful”. He said he got the tax inspector involved who had a “word with them”, which seemed to do the trick.

What has been your experience of dealing with HMRC’s debt management unit and external agencies?

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Replies (3)

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By elansea
18th Mar 2013 16:58

Debt Collection

Whilst I approve of HMRC collecting what is rightly due to them, I do feel that they try to bully the small guy while the big guys get away with fortunes. If the advice from Mr Lovell levels the playing field just a little, then it shouldn't be ignored.

I am always amazed at how much VAT and PAYE is owed by football clubs and major liquidations/CVAs etc. It seems like more than one quarter's VAT or month's PAYE. I guess their bullies are too busy with the pond life to chase the big fish.

Great article, and you can rest assured that the institutes won't upset their cosy tea parties by pressing the matter with HMRC

Thanks (1)
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
18th Mar 2013 17:43

Minor editorial clarification

Thanks for your kind comments. However the main thrust of the article is entirely David Gordon's. Robert Lovell (AccountingWEB's deputy editor) added the comments drawn from previous members' conversations to support and illustrate David's argument.

Thanks (0)
By Number Juggler
19th Mar 2013 19:07

They tell lies

A client had one of these debt recovery firm "collectors" on his doorstep. The collector claimed he was from HMRC and that he had the right to force an entry into the house and strip it bare if he wasn't' paid in full immediately. Luckily the client was smart enough to slam the door in his face and call the police.

Thanks (1)