If you have outstanding tax debts owed to HM Revenue & Customs (HMRC), you might be wondering how likely it is that the debt will be passed to an external collection company to recover on their behalf and, more importantly, which companies they’re likely to use.
HMRC usually uses a set process to collect unpaid debts and works with a small number of debt collection agencies. Familiarising yourself with the process can help you know what to expect if you let a HMRC debt go unpaid for some time and you’re anticipating recovery action.
Which debts do HMRC collect?
In England, Scotland, Wales, and Northern Ireland, HMRC is responsible for collecting various tax-related debts, including corporation tax, income tax (PAYE), National Insurance (NI), and VAT.
It’s important to note that any debts owed to HMRC are classed as priority debts. This means that they must be dealt with urgently to avoid serious consequences, including a court order, enforcement action, and, in extreme cases, imprisonment.
Other priority debts that are not collected by HMRC include court fines, council tax, and housing (rent or mortgage arrears).
However, while legal action can still be taken against non-priority debts, there will usually be less of an impact on you as a whole. Examples of non-priority debts include personal and payday loans, overdrafts, and credit cards.
HMRC is the organisation tasked with dealing with all kinds of tax debts, whether you’re an individual or a limited company.
How much debt do you have?
Do HMRC use debt collection agencies to recover debts?
Yes, HMRC often uses debt collection agencies to recover unpaid debts. In fact, according to the firm’s annual report, they have gone from assigning £4.5 billion to debt collection agencies in 2019/2020 to assigning £9.3 billion in 2023/2024.
HMRC likely relies on debt collection agencies to help them recover the billions of unpaid debts they are owed by individuals and company directors each year. By outsourcing the collection process, they can save time and money in doing it themselves and better manage the volume of cases they receive.
The good news is, HMRC tends to use the same debt collection agencies to help them recover unpaid debts. This means that you could familiarise yourself with the debt collection agencies that are likely to reach out to you if you owe HMRC money.
What are the HMRC debt collection agencies?
According to GOV.UK, HMRC currently works with the following eight pre-approved debt collection agencies to recover overpaid tax:
- 1st Locale – trading as LCS
- Advantis Credit Limited
- Ardent Credit Services – trading as Debt & Revenue Services (DRS)
- Bluestone Consumer Finance Limited – trading as Bluestone Credit Management
- BPO Collections Limited
- Commercial Collection Services Ltd (CCS Collect)
- Moorcroft Debt Recovery Limited
- Pastdue Credit Solutions Limited
The debt collection agencies HMRC works with are all regulated by the Financial Conduct Authority (FCA). This means that they must follow a set process when collecting unpaid debts and are regularly reviewed to ensure they are adhering to certain guidelines.
Once a debt collection agency has gotten in touch with you about a debt owed to HMRC, you should make payment to them, not your original creditor.
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What should I do if a debt collection agency contacts me over a HMRC debt?
If you’ve failed to respond to a final opportunity letter and HMRC sends a collection agency to collect payment on their behalf, it’s important to deal with the situation as soon as possible to prevent further enforcement action.
Here are the steps you should follow if you’ve received an overdue tax letter and a debt collection agency has contacted you over a debt owed to HMRC:
Verify the agency and the debt
Scammers often pose as debt collectors acting on behalf of HMRC to trick individuals into handing over money they suspect they might owe.
To avoid this happening to you, contact HMRC directly and ask if they have passed your debt on to the same company that is contacting you. If the collection company gets in contact with you first, they will likely ask you some security questions to protect you and your tax affairs.
Once you have verified that the debt collection agency is a legitimate company and they have a working partnership with HMRC, you should check that the amount you’re being asked to pay is correct.
Consider a Time to Pay arrangement
It might be possible to apply for a Time to Pay arrangement, which is an agreement between you and your creditor to repay your debt in affordable instalments over a fixed period (typically 6-12 months). This can be an option for both individuals and businesses struggling with HMRC debt and facing temporary financial difficulty.
Usually, your request for a Time to Pay arrangement will be accepted if you’ve had no problems paying your tax in the past. However, even if you have a history of tax arrears, it’s still worth submitting an application.
This can allow you to pay what you owe in a way that’s more manageable for you and help you avoid the need for a formal debt solution, such as bankruptcy, which can have a serious impact on your finances.
Understand your options
It’s important that you understand all available options for dealing with debt, which will differ depending on your situation. If you agree with the debt and the amount, you can pay the full balance upfront or arrange a payment plan.
If you dispute the debt, you should complete a dispute form and send it to HMRC. It will ask you to submit evidence to prove that you don’t owe the debt, such as payment receipts, bank statements, or tax returns.
Remember, if you agree with the debt but you can’t afford to repay it, you should seek advice from a debt expert and consider setting up a repayment plan.
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Can I get a HMRC debt written off?
In most cases, you can’t get a HMRC debt written off. However, you might be able to get HMRC to agree to write off a debt if it’s deemed irrecoverable and this might happen anyway if you include it in a formal debt solution, like an Individual Voluntary Arrangement (or a Company Voluntary Arrangement), a Debt Relief Order, or bankruptcy.
It might also be possible to get a HMRC debt put into ‘remission’ if repayment would cause serious financial hardship, you have no assets that could be sold to repay the debt, or your current circumstances mean it’s unlikely you’ll ever be in a position to pay what you owe (e.g. due to severe illness, old age, or long-term unemployment). In remission, the debt isn’t formally written off, but any ongoing collection proceedings permanently cease.
There are some reasons that HMRC won’t accept as valid explanations for not being able to repay a debt. This includes you simply refusing to pay, you disagreeing with the way the tax system works, and you simply hoping it will go away if you ignore it long enough.
What happens if I don’t pay HMRC what I owe?
As previously mentioned, HMRC debt is a priority debt. This means that there can be serious consequences for not keeping up with your tax liabilities.
The first thing HMRC is likely to do is to instruct a debt collection agency to collect payment on their behalf. However, if the debt remains unsolved after this, HMRC enforcement officers might visit you at your home or business premises to demand payment of the debt directly.
When an enforcement agent from HMRC contacts you, they will ask if you can pay your balance in full. If that’s not an option, they will either seize assets or ask you to sign a controlled goods agreement, which is a contract stating that your assets will be seized if you fail to keep up with an agreed payment schedule.
The Taking Control of Goods Agreement 2013 outlines the guidelines that debt collection agencies must follow when visiting you to take control of your belongings. It also states which items they can and cannot take.
Some of the more serious actions that can happen if you don’t pay a HMRC debt include:
- Recovering outstanding debts through your wages or pension payments
- Taking money owed directly from your building society or bank account (if you owe more than £1,000 and there are enough funds to cover the debt and reasonable living costs)
- Issuing a winding-up petition to make you bankrupt
- Taking county court proceedings against you
- Adjusting your tax code (up to 50% of your gross income can be taxed to collect outstanding debt)
- Seizing your belongings to sell at auction
However, insolvency proceedings are usually only taken as a last resort if you fail to come to an agreement over repayment of the debt.
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Conclusion
If you owe money to HMRC, it’s important to note that you’re not alone. In fact, HMRC is the largest creditor in the UK. However, this means that the tax debt enforcement powers of HMRC can be more serious than others.
If you fail to come to an agreement over what you owe, a HMRC debt collector or enforcement agent might visit you at home and try to come to an agreement over repaying what you owe. This might involve them setting up a controlled goods agreement where you’re able to keep your belongings in exchange for making regular payments.
Always reach out for free debt advice if you’re worried about being chased by HMRC over an unpaid debt. There are many options available to you to help you deal with what you owe and put your tax debt behind you for good.
