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HMRC: Outsourced debt collection costs soar

16th May 2018
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The amount HMRC spends annually on private sector debt collectors has increased by 630% in the last four years, and Kate Upcraft sees a strong connection with the introduction of RTI.

Value for money?

Research published by UHY Hacker Young shows an alarming rise in taxpayers’ money spent by HMRC on private sector debt collection since the introduction of RTI in 2013. In the year 2014, HMRC paid out £6.2m to private sector debt collectors; in 2017 the cost of debt collection paid by HMRC was £39.1m.

HMRC may claim that this is value for money and that the cost of debt collection is a necessary part of its role to close the tax gap. However, the tax gap is a vague figure which only HMRC can quantify, and there is no accurate analysis on which to justify a spend of £39m to collect the supposed total of outstanding tax debts.

What is the true tax debt?

HMRC itself made the startling admission in the RTI post-implementation review that the vast majority of tax debts they looked at in ‘closed cases’ never existed in the first place. This is what HMRC admitted in December 2017: “Analysis of a sample of closed cases showed that, on average, 78% of the outstanding debt was spurious”.

If that is the case, on whose authority was HMRC allowed to increase its spend on private sector debt collectors? HMRC’s position as a non-ministerial department designed to preserve impartiality in the tax system leaves only the NAO (National Audit Office) and the PAC (Public Accounts Committee) to challenge its operational decisions on a value for money basis. 

Tales from the front line

Every week when I’m lecturing I’m regaled with stories from employers and tax agents who have had aggressive encounters with debt collectors. These private sector debt collectors often have no background paperwork to justify their enforcement action, just a figure from HMRC to collect. If they are not paid they will threaten to take goods to the value of the alleged debt.

Commenting on the research Mark Giddens, head of UHY Hacker Young, said: “Private sector debt collectors have been accused in the past of taking a gloves-off approach. Some say that using private collectors is the wrong way to chase tax debtors, especially as many can’t – rather than won’t – pay their debts.”

Giddens continued: “HMRC is under increasingly heavy pressure to ramp up their tax take but must do its utmost to see that the public are not unnecessarily pestered.”

Incorrect debts

Debt collectors arriving at a business premise can cause massive reputational damage and unchargeable time for agents, not to mention worry for employers. If the problem is allowed to fester, incorrect winding-up orders may also be generated from the same corrupted RTI data which gave rise to the incorrect tax debt.

What is the root cause?

The tax gap is one of HMRC’s key performance indicators. So surely there should have been some root-cause analysis of the accuracy of tax debt which makes up a large part of the tax gap? The senior management of HMRC needs to address these points:

  • The core RTI database is at times unable to distinguish if the RTI data submitted by employers and tax agents represents a new or existing employment.
  • In at least 200,000 cases per year (0.5% of employee population - per RTI implementation review) the RTI database duplicates the employment, incorrectly inflating the employer’s liabilities.
  • HMRC’s payments' system acts unpredictably in allocating payments to the wrong period, year, or even to the wrong employer.
  • Misallocated payments lead to an incorrect perception of non-compliance, as non-existent tax debts are created.

The net result of these errors is:

  • The employer is totally compliant with its PAYE obligations.
  • HMRC debt management staff see figures of tax debt that are incorrect, but they are unaware of the errors, although their PAYE colleagues know the RTI data can’t be relied upon.
  • The debt management team brief the private sector debt collector to collect a debt that doesn’t exist and pay the debt collectors to do this.

Replies (15)

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Chris M
By mr. mischief
16th May 2018 14:02

THIS is the sort of low-hanging fruit HMRC should be fixing instead of their moronic MTD implementation.

I have a STANDARD LETTER for dealing with these characters, which I print here so others can benefit from it. I do 1 a month or so, and generally this letter nails it and I need no more.

"In your letter of 3 October to my clients, X, you give the following client reference:


This is not a recognisable HMRC tax reference of any description. I have no way of knowing what it refers to because of the unprofessional way in which Advantis sends out demands without any backup whatsoever. I can’t even establish to which tax it might refer, the balance quoted bears no relation to anything on this client’s HMRC dashboard.

On the face of it, you appear to have fabricated this tax reference and in addition fabricated a tax liability you think is due from my clients.

Somewhere in the system between the HMRC database and your computerised statement you have made a large error. Please remove this error from your system and, out of common decency, apologise to my clients for the stress and upset you have caused them. Please note that if you issue further such debt collection letters under the same made-up reference I consider that to amount to negligent and undue harassment, and clearly it will then be open to my clients to consider whether they wish to seek redress from Advantis for this harassment."

It goes without saying that the debto collectors and HMRC have never once seen fit to make an apology for their amateurish tactics.

Thanks (4)
Replying to mr. mischief:
By tonyaustin
18th May 2018 17:23

I suggest in future you send a copy of the letter to Angela MacDonald, Director General Customer Services, HMRC, 100 Parliament Street, Westminster, London SW1A 2BQ
It's the only way the management will realise the problems their staff and policies create!

Thanks (1)
Adrian Lawrence
By AdrianLawrence
16th May 2018 17:18

Sometimes at the end of the process, HMRC then do nothing, ie spend money on debt collectors but then decide not to enforce the collection / put in a winding up petition.

Thanks (0)
Replying to AdrianLawrence:
By Helen Rolfe
18th May 2018 10:13

I agree - I've got a couple of clients who have been threatened by the outsourced debt collectors but never enforced.
One in particular now owes over £80k, has a salaried job as well as self employment - so the debt goes up every January and July. Hasn't paid any SA tax for 4 years.
He has rental property, quite obvious from the tax returns, he could and should be forced to sell it.
He is in this mess purely because he chose to buy a house he couldn't afford, has no dependants either.
Yet I've had other clients driven to despair over quite small amounts of tax and struggling in very difficult circumstances - either ill health or family difficulties.

Thanks (1)
By Sheepy306
16th May 2018 19:33

On what basis are the debt collectors remunerated? Is it a fixed fee or % of recovery?

Thanks (0)
By Anthony G Thorne
17th May 2018 13:35

Disclosure to third party debt collectors breaches the CRCA 2005 s18 on confidentiality. So they, the debt collectors, are potentially in receipt of criminal property.

Also there does not appear to be anybody in DMB who can read as letters them are completely ignored.

Thanks (3)
By david wilks
18th May 2018 10:19

I have a case where my client received letters dated February 2018 from Debt Management suggesting "specified charges" amounting to £6,700 re cis for months ended 5 August, September, October, November, December 2017 and January 2018 are due and attracting interest. Specified charges are completely made up and bear no relation to the truth.
The last subcontractor left in 2012/2013 and the scheme was closed. Do you think I can get this across to them? No. The computer says so, so it must be right. I wish I could bill my clients in such a way!

Thanks (3)
By kiwilondon99
18th May 2018 10:32

& another RTI issue
they makeup a "specified charge" number
[ one they think is real !? ] and then send off the Debt management. Letter s to HMRC go normal.. HMRC letters are intimatory & unsigned
Debt management instruct bailiffs, no wonder fees are rising .
Its a whole new economy - GDP rising - based on a makeup number which of course is bogus from inception - because of the HMRCsystem issues noted above

so be aware of specified [madeup liabilites]charges

Thanks (1)
By leon0001
18th May 2018 11:28

If your client is a limited company with an overdrawn bank balance or outstanding loan balance, draw the debt collector's attention to the debenture which shows that the bank has a first fixed and floating charge over all of the company's assets. Or there might be a similar rent guarantee document.
I haven't seen an unsecured loan or overdraft facility for ages.

Thanks (0)
By tedbuck
18th May 2018 12:05

Interesting that most people have the same experience. I telephoned Advantis re one such debt (RTI) which purported to be two separate months PAYE. I was told they couldn't deal with two months at a time but had to do each one separately. They had no details of the debt beyond the amount and could not check to see if it had been paid, which it had.
Nobody but HMRC could enter into such a ridiculous arrangement. I suppose that as it's taxpayers' money it doesn't matter how much they waste.
I even had a case where a client had paid a small amount of Corporation Tax, about £138.00 only to have it returned to him as HMRC had decided not to collect it! Absolutely unbelievable but absolutely true.
One can only assume that everything at HMRC is done per the check list and there is no intelligence left there at all.
And, yes, no point in writing to DMB as they don't bother to reply unless you make a formal complaint which I now do automatically if I do want a response.
Basically they are totally incompetent.

Thanks (1)
By jamiea4f
18th May 2018 12:18

I owed HMRC a year ago and received a couple of phone calls from an “unknown” number, which I ignored. Then I received a text telling me to ring this number urgently. No details, no nothing. Thinking it was a scam I ignored that as well. When I received another one I rang the number and they told me they were some debt collection company on behalf of HMRC. When I asked them if it was their policy to make phone calls from unknown numbers and send texts with no information and that most people would consider this spam, or even harassment, they said that was how they worked. Fortunately I’d already paid a couple of days earlier but if this is how they treat everyone it’s no wonder people don’t pay....
plus this is usually what happens with outsourcing, starts off seeming like a bargain then the real costs kick in and of course it’s then too late. Good to know our tax monies are being used wisely....

Thanks (0)
By AndrewV12
18th May 2018 12:57

Im all worried now, am I on a list, if so how high am I on this list.

Thanks (0)
By Brend201
18th May 2018 13:43

This is interesting because Ireland will be introducing the equivalent of RTI from January 2019 (i.e. the beginning of our next tax year). It is (apparently) progressing smoothly and people seem to have little fear about it. The Irish Revenue have generally tried to win hearts and minds before imposing new processes on taxpayers. Of course, if they have any sense, they will have learned from the UK experience. We'll see.

Thanks (0)
By KrisKros
18th May 2018 17:06

Hardly shocking but certainly interesting figures.

In my own experience I initially read the full briefs of RTI. The basic idea behind it is great, it's implementation appalling.

The level of compliance and returns required increases administration burden. all three businesses I have worked for since had substantial errors in figures even when RTI processes were followed correctly. The system is not robust, errors are almost impossible to fix and take repeated calls and letters. Usually due to HMRC misallocations!

The worst however was a double submission from an outsourced payroll company who double counted my prior employemnt. My current tax record shows a list of numbers with a total, the total does not equal the sum of the monthly payments. I was told that my former employers need to do a resubmission, 2 years on., despite these numbers obviously being wrong.

The promise and idea of RTI are great to me, this article just adds another failed string to it's shabby bow

Thanks (1)
By istacey
29th May 2018 09:02

I thought one of the reasons HMRC stopped allowing the settlement of liabilities using a personal credit card was due to the unfairness on other tax payers having to suffer the burden of the card processing fees.

How does that policy fit in with driving up the outsourced debt collection costs - which surely unfairly impact on the other taxpayers in exactly the same way.

It would be interesting to know what debts would have been settled by credit card rather than being pushed out and the respective costs of both.

Thanks (0)