Managing tax debt through the pandemic

HMRC should work with the rest of government, and, in particular, HM Treasury and the Department for Business, Energy & Industrial Strategy to: a) develop and communicate a strategy that sets out how recovering debt should change in light of the pandemic. This may require greater sharing of information to understand the taxpayer’s exposure, and identifying different timelines and parameters for chasing debt.

Ref Page 12, paragraph 23, point a · Implemented 01/2023

j) Develop its understanding of the effectiveness of the different tools and interventions that it already uses and how they interact. Process mapping and data mining techniques can help it better plan a long-term strategy for reducing debt, allocate resources to where they are most effective and put in more resources where needed.

Ref Page 14, paragraph 26, point j · Implemented 06/2023

k) Adopt good practices from the private sector and from its own handling of debt during the pandemic on a permanent basis. In particular, a clear focus on affordability rather than repayment within a year could help customers maintain payments and reduce the workload of following-up failed arrangements. This should be explicit in HMRC’s internal guidance as well as external communications. HMRC should also routinely signpost the availability of independent debt advice and refer customers to debt charities where needed, which could also help reduce the burden on its extra support team.

Ref Page 14, paragraph 26, point k · Implemented Q3 2024-25

l) Signal in its external communications that it will take a tough approach with companies that deliberately misuse insolvency rules. It has new powers to attach debts to the owners of companies that go bankrupt. As the UK emerges from the pandemic, it can make companies aware of these powers to act as a deterrent.

Ref Page 14, paragraph 26, point l · Implemented 05/2022

HMRC faces a large increase in debt and the number of taxpayers in debt. Taxpayers are taking more time to pay off debts, which may mean more contact points with HMRC and different rates of escalation. To manage this workload effectively, HMRC should do the following: b) In its planning for the new Spending Review period, HMRC should urgently consider increasing capacity using both recruitment and private sector options. It should explore how it can speed up its training so it can increase capacity more quickly.

Ref Page 12, paragraph 24, point b · Implemented 03/2022

c) Model the potential scale of work needed to manage debt effectively for different post-pandemic scenarios, in terms of speed and ease of debt collection. Assess whether HMRC has sufficient capacity to meet these scenarios.

Ref Page 12, paragraph 24, point c · Implemented 04/2023

d) Target much greater levels of return than before the pandemic. Given that taxpayers’ average levels of debt are much higher than before the pandemic, HMRC should aim for a significant increase in the total return from new and existing capacity. It should identify how much more resource it will need to bring in to bridge the gap at target rates of return.

Ref Page 12, paragraph 24, point d · Implemented 03/2024

e) Identify how debt management needs to operate differently to deal with the changed nature and amount of debt. HMRC now has more old debt, and much of the pandemic debt will be difficult to collect quickly. Older debt becomes more difficult to trace as time passes so HMRC will need to establish and maintain contact with as many debtors as possible. Maximising collections may require different decisions about targeting its resources from those it would make in business-as-usual circumstances.

Ref Page 12, paragraph 24, point e · Implemented Q4 2025-26

HMRC needs to improve its understanding of customers to be able to support them and target activity appropriately. HMRC should do the following: f) Use a wider range of data to better understand how taxpayers’ financial positions have changed as a result of the pandemic. HMRC holds a rich source of data from taxes, but some lags significantly behind activity and does not provide insight into any other debts taxpayers may have. It should urgently seek access to wider government information on levels of indebtedness for individual taxpayers (for example, details of business support loans that customers have received). It does not normally draw on commercial data because of the cost, but it would now be justified in trialling the use of this because of the uncertainty that the pandemic has created.

Ref Page 13, paragraph 25, point f · Implemented 01/2025

g) Extend its segmentation analysis by considering the scale of debt against income, and the sectors in which businesses operate, to be able to identify taxpayers who have done well during the pandemic. Successful applications for grant claims and loans may mean that companies do have cash to pay debts.

Ref Page 13, paragraph 25, point g · Implemented Q4 2025-26

h) Estimate how the scale of demand from specific pressures, such as new customers, vulnerable customers and companies becoming insolvent, may change, using proxy data sources where necessary. HMRC can then identify pressure points and adapt operational processes where needed, including when to refer customers to specialist teams dealing with vulnerable customers and insolvencies.

Ref Page 13, paragraph 25, point h · Implemented 06/2023

HMRC is restricted in its ability to increase capacity in the short term. In the long term, it should look to build on its existing plans to develop the tools and powers to better manage the range of taxpayers’ needs it encounters. It should do the following: i) In its planning for the new Spending Review period, HMRC should urgently consider whether resources are needed for more tools to support debt management (such as data analytics, the single customer account, and customer-facing systems – for example, online tools for setting up payment arrangements for business customers).

Ref Page 14, paragraph 26, point i · Implemented 03/2023