UK Tax Agency Increases Use of Private Debt Collectors

Her Majesty’s Revenue and Customs (HMRC), the national tax collection authority in the United Kingdom, has more than doubled the commissions it paid to private debt collection agencies from 2011 to 2012, according to a report from accounting firm UHY Hacker Young.

The group said that HMRC paid $20.2 million to private ARM firms for their collection efforts in 2012, compared to $8.75 million in 2011. UHY explained that the private debt collectors were simply getting more work.

“HMRC is under a lot of pressure to increase its tax take, and bringing in professional debt collection agencies to follow up on debts is seen as a cost effective way of doing this,” said Mark Giddens, Head of Private Client Services at UHY.

HMRC began an external debt collection agency pilot in 2009, appointing four agencies from July 2010. The agency planned to increase the number of agencies in use to 10 in 2012.

HMRC claims its increased use of external debt collection agencies helped bring in $168 million of debt in 2011-12. They estimate using external debt collection agencies brought in an extra $106 million on top of what it would otherwise have collected.

In 2011-12, HMRC transferred $855 million worth of tax debt to private collectors, and expected to transfer another $800 million of debt to external agencies in 2012-13.

The UK private debt collection pilot launched the same year the U.S. equivalent IRS killed its private debt collection program. The move has been questioned, with the Government Accountability Office (GAO) issuing a report the following year revealing that the IRS may have used flawed study methodology when it decided to stop outsourcing some delinquent tax collection work to private debt collection agencies.