HMRC enforcers threaten families left penniless by the pandemic

Revenue officials have written to families struggling to settle bills during the pandemic and threatened to “take things you own and sell them”.

Paul Morgan-Bentley, Head of Investigations | Rosa Ellis, Data Journalist www.thetimes.co.uk 

Letters have been sent accusing people on low incomes of “deliberately” choosing not to pay taxes. They are warned that officials “can take money directly from your bank or business society accounts”.

While much of the country has benefited from billions in financial aid, Her Majesty’s Revenue and Customs (HMRC) has tried to collect debts by sending agents to visit people.

The enforcement tactics, which have included the use of eight private debt collection companies, have been condemned for causing “distress” and “emotional trauma”. In some cases, however, the arrears are the result of HMRC errors.

After being contacted by this newspaper, the department apologised last night for about 800 letters it had sent during the pandemic accusing people of deliberately not repaying debts.

It said that the content “was a mistake and does not reflect our current approach to debt collection”. It did not apologise for threatening repossessions and a spokesman said this was “a pretty standard line” that “we often use”.

An investigation by The Times also found that:

• HMRC has passed on 4.5 million personal records to private debt collectors since 2014 without taxpayers’ specific consent and they are incentivised to maximise takings.

• The debt-collection companies use the pandemic as a means of pressing people to pay, writing that “Covid-19 has damaged the economy” and tax is needed “to fund the NHS”.

• Cancer patients and care home staff are among those who have been chased by debt collectors working with the government department.

• A vulnerable man whose local authority passed details of his council tax debt to collectors tried to commit suicide last month after suffering anxiety over mounting debts.

• The department refused to disclose the number of cases it had passed to debt collectors during the pandemic, despite the release of equivalent figures for the previous six years.

HMRC uses private companies to chase tax debts relating to issues such as credit overpayments and miscalculations on self-assessments.

People on low incomes who are eligible for tax credits can be overpaid for many months without realising and then face repayment demands for thousands of pounds, which they cannot afford. Others owe money relating to freelance work for the previous tax year but cannot pay because of loss of earnings during the pandemic.

The debts in cases seen by this newspaper range from £66 to more than £10,000. In recent months, several of the debt collection companies have written to families struggling to pay.

They all used the same wording: “Covid-19 (Coronavirus) has damaged the UK economy, which means more than ever it is important that tax debts are collected to help it recover. These are also needed to continue to fund vital public services like the NHS.”

They can contact taxpayers by letter, text message and phone. If there is no response or they do not pay the cases are handed back to HMRC.

In October, the taxman wrote directly to Richard Hull, 59, a carpenter who has been unable to settle a tax bill of £9,733 because he and his wife, a care home worker, were ill with the virus in April and most of his customers cancelled or delayed work.

Mr Hull had tried to respond to other letters from one of the debt collection firms but was unable to get through on the phone. While furloughed workers have had 80 per cent of their wages covered, many self-employed people, including Mr Hull, have not qualified for government help. This is often because they are newly self-employed or directors of limited companies.

The letter to Mr Hull from HMRC stated: “If you still don’t pay, we’ll now treat you like you’ve deliberately chosen not to . . . We can take things you own and sell them and we charge you fees for doing this. If you don’t act now it could cost you more money. Alternatively, in certain circumstances we can take money directly from your bank or building society accounts.”

HMRC did not respond to requests for the number of letters threatening repossessions it has sent since April.

In the 2019/20 financial year, HMRC gave 1.1 million cases to private debt collectors — more than double the number five years earlier. HMRC refused to disclose the number of cases handed to debt collectors since the pandemic struck in April, claiming this is “commercially sensitive information”. Taxpayers have made more than 1,400 complaints about the companies to the department since 2014. Over the past decade HMRC has spent at least £179 million on debt collection services.

The department also employs an internal team of 285 “field force collectors” who visit people at home or at business premises. They have made 2.4 million visits since 2014, with 1,091 of them made during the pandemic.

These have been only to business addresses. HMRC said they were not to list or collect assets but to “offer support”. Local authorities also use private companies to chase council tax debts and have continued to do so this year.

Rushanara Ali, a Labour MP on the Treasury select committee, called for a review of public services’ use of debt collection agencies and aggressive practices. “We all recognise the need to recover taxes but in the middle of the pandemic there needs to be greater sensitivity so that it doesn’t become counter-productive,” she said.

StepChange, the largest debt advice charity in Britain, said government debt collection practices were more aggressive than those in other sectors.

Peter Tutton, head of policy, said: “At a time when so many people are struggling due to coronavirus, outdated and harmful approaches to debt collection cannot be allowed to continue.”

The debt collection agencies said they were regulated by the Financial Conduct Authority and trained to identify and help vulnerable customers. They said they have offered additional support during the pandemic, including changes to repayment terms.

HMRC said that repossession “is only mentioned in a letter after we have already made several attempts to contact a customer”. Less than 1 per cent of field force collector cases lead to goods being removed.

HMRC stopped debt collection activities in March but contacted a million people with tax debts built up before the pandemic when restrictions were lifted in some areas.

A spokesman said that contact initially focused on working with people to help them find an affordable way forward and that “strongly worded communications only go out as a last resort”.

Private firms are awarded commission to hunt debts

Private companies chasing struggling families for tax debts are given incentives by the government to maximise the amount of money they collect.

They are reimbursed using a “payment by results” model, according to a contract for the work seen by The Times. If people who owe taxes pay HMRC after being chased by a debt collection agency, “it will be able to claim commission on these payments” up to a cap, it states.

In some cases the agencies amend debt balances to add interest and penalties when instructed to do so by the Revenue. Although the contract, which runs for seven years from 2015, offers basic information about the arrangements, details about amounts paid, how the commission is calculated, at what level payments are capped and extra penalties have been redacted to protect “commercial interests”.

HMRC outsources the collection of arrears to Integrated Debt Services, also known as Indesser, which is a private company majority owned by TDX Group. TDX Group is owned by Equifax, the consumer credit reporting agency headquartered in the US Indesser then sub-contracts the work to eight debt collection agencies.

In 2019 HMRC spent £25.4 million on debt collection services, according to figures compiled by the accountants UHY Hacker Young. Over the past decade it paid at least £179 million to debt collectors. The companies can try to contact people by letter, text messages and calls and if they do not respond or they cannot pay the cases are handed back to HMRC. The contract states that scripts — for instance for the letters and text messages — are approved by a government department. If the department decides a type of debt should not be collected on a “payment by results” basis, the contract allows different payment models to be used.

For instance, it offers a “platinum” package that allows a set fee to be paid in return for a debt agency sending three letters, making five calls and sending five text messages.

Indesser has collected more than £1.7 billion in public sector debt for 17 government bodies since its inception in 2015, according to its annual report for 2019. Its highest paid director earned £277,000 in 2018.

Indesser and HMRC declined to provide more details about the amounts paid in commission. Indesser said debt collection agencies were subject to “extensive due diligence” before approval by HMRC. It said all correspondence with the public had been updated in light of the pandemic “to acknowledge the impact on lives and finances across the country” and that people were allowed extra time to repay. It only added penalties or interest to bills if instructed to do so by a government department, at no financial benefit.

HMRC said that the law allowed it to delegate work to private sector suppliers. It said that safeguards were in place to ensure that they were monitored and complied with rules and that it had a “robust complaints process” and “will always work to rectify any mistakes”.