HMRC Debt Recovery Practices in the Spotlight following Complaints

New research from a top six firm of chartered accountants has shown that HMRC has drastically reduced its use of external Debt Collection Agencies. The report indicates that the number of instructions sent by HMRC for debt recovery has been slashed by over 50% from £14.8 million in 2013 to just £6.8 million in 2014.

Debt collectors chase tax credit overpayments

HMRC has faced growing public criticism ever since it started using debt collectors in 2009, with both the number of instructions and complaints reaching a peak in 2013. The vast majority of complaints relate to HMRC’s decision to use debt collection companies to recover overpaid benefits and tax credits, 12 different agencies were instructed to recover payments in over 200,000 cases in 2013 alone. In over 80 cases people who had been overpaid tax credits and were then unable to repay, had their assets seized and sold to pay HMRC.

Campaigners have highlighted the fact that those people being pursued are in most cases the poorest in our society and usually they have no idea that they have been overpaid until they are contacted by a debt collection services.

A spokesman for one campaign group explained:

“HMRC is responsible for awarding the amount an individual receives in tax credits and often they use estimates to work out the figures. If HMRC gets this wrong as they did in over 200,000 cases in 2013 and then overestimates and overpays benefits, they will instruct debt collectors to recover the money.”

“In many of these cases the recipients of overpayments have contacted HMRC and informed them that they were being paid too much money, however in turn they were informed the figures were correct and the payments would continue; only to be contacted months later to be informed the figures were indeed incorrect and the money would have to be paid back. As you can appreciate these are poor people who will have spent the money on day to day expenses and necessities, they will not still have the money and they will not have the means to pay it back.”

“What happens next is their tax credits are reduced to the correct figure and they are then expected to make repayments out of their reduced benefits, this is impossible for most people who rely on benefits to make ends meet.”

“It is simply wrong that vulnerable people are paying for HMRC mistakes, the prospect of trying to pay back overpaid tax credits is stressful enough without having to deal with a debt collector threatening legal action.”

HMRC defend the use of debt collection agencies

While HMRC did write off almost 6,000 cases of overpaid tax credits in 2013 due to the financial hardship of the claimant, this amounts to just 3% of the total cases where HMRC got the figures wrong.

A spokesman for HMRC said:

“Instructing debt collection agents is a cost effective and now established part of standard debt recovery procedures. All these collection agencies really do is make telephone calls, send text messages and write letters. The DCA’s we use operate to the highest industry standards in addition to our own customer charter and code of recovery practice.”

“Overpayments and underpayments have always been part of the tax credit system, the only way to award payments quickly is to estimate income. Changes in personal circumstances lead to changes in income, therefore mistakes will always be part of the process. The key is to identify and recoup overpayments as soon as possible, and the use of debt collectors is integral to this.”

Commercial debt recovery

HMRC’s attitude to commercial debt recovery has also been criticised as many owners of small and medium sized businesses have struggled to pay income tax on time in the years since the recession. While businesses who are struggling for the first time will usually we offered the chance to put forward a repayment plan, this often has a chain reaction as the burden of making the payments inevitably means there will be a shortfall the following year, leaving the business in the same position of being unable to meet its income tax payments.

It appears that you only get one chance with HMRC and even if you agree and pay installments on time, HMRC will not hesitate in instructing a commercial debt collector if you need time to pay the following year. This situation has not been helped by reports of miss-communication between government departments and the collection agents they use leading to some companies being pursued for tax payments they have already made. And it seems that things can only get worse following the introduction of new powers enabling HMRC to seize money directly from bank accounts to pay tax bills, and request payment upfront in disputed cases prior to the completion of investigations.