Corporate report

HMRC’s tax debt strategy

Published 26 October 2023

Strategy overview

Our approach to customers in tax debt remains to:

• make it as easy as possible for customers who can pay to do so
• support those who need help
• take effective enforcement action against those who refuse to pay or cooperate

Our tax debt strategy (‘the strategy’) sets out how we will improve the management of tax debt from 2023 to 2024 onwards. Our goal is to minimise the volume and value of tax debt.

By identifying and analysing the key challenges to meeting our goal, we have developed 4 strategy pillars:

• preventing tax debt
• tailoring interventions
• effective and efficient resolution
• being adaptable

These pillars are set out in more detail below.

Underpinning and running throughout the strategy is our commitment to being a responsible creditor. This is fundamental to how we engage and interact with our customers.

The graphic below shows a visual summary of our tax debt strategy.

Tax debt strategy pillars

Preventing tax debt

The objective for this pillar is to minimise the volume of tax liabilities that become a debt. This will help to meet our strategy goal by reducing the volume of debt arising so we can focus our resources on debts that are harder to resolve and/or on customers that need more support.

The three sub-pillars to preventing tax debt are:

• payments
• compliance debt
• tax policy design

We intend to make payment as simple as possible for customers. This includes methods of payment and payment allocation. This will ensure payments are credited against the desired liability and help prevent debts arising.

Compliance debts are those that arise from interventions by Customer Compliance Group to tackle error, avoidance and evasion. We intend to reduce the volume of liabilities arising from compliance interventions that become debts through offering better payment options and improved communications during compliance interventions, before customers are contacted by our Debt Management teams.

We intend to ensure that payment and debt prevention are at the heart of tax policy design, to reduce the volume of debts created in the future. For example, when taxing an economic supply chain it will generally be preferable, from a debt prevention and management perspective, to place the liability on the layer in the chain that has the fewest number of payers with the greatest ability and propensity to pay.

Tailoring interventions

The objective for this pillar is to apply the most appropriate intervention to a particular debt and customer at the right time. This will help meet our strategy goal by reducing the number of ineffective interventions and identifying customers who need our support.

The three sub-pillars to tailoring interventions are:

• data sources and uses
• operational deployment
• optimised debt journeys

We intend to understand the best data sources to improve our segmentation, and to what extent they improve it, so that these can be added over time. This includes external data sources as well as internal data, such as other information we learn about after engaging with the customer following the initial segmentation.

We also intend to use data from our compliance interventions, such as information about the customer’s behaviour. This will enable us to strengthen our treatment of deliberately non-compliant customers and provide a consistent approach to achieving behavioural change.

We intend to deploy the tailoring approach throughout all appropriate interventions across HMRC, and not just within our Debt Management teams. We will give colleagues this information to enable them to make the best decision when engaging with customers.

We intend to create personalised and dynamic customer journeys that use a range of data and analytics to select the best intervention for each debt. This will use machine learning to optimise output against resource availability.

Effective and efficient resolution

Resolving a debt means one of the following outcomes:

• payment – full, partial and/or delayed payment such as Time to Pay arrangements
• remission – our decision to no longer pursue a debt on economic grounds (can be undone)
• write-off – administrative action when no legal route to collect exists, such as insolvency
• administrative actions – for example, customers amending their returns or re-allocating payments

Our objective for this pillar is to make sure our process for resolving tax debts is as efficient and effective as possible. This will help meet our strategy goal by increasing our capacity and the effectiveness of our interventions so we can resolve more tax debts.

The three sub-pillars to effective and efficient resolution are:

• channel shift
• recovery powers
• internal processes

We intend to resolve as many debts as possible through digital-only products and services, rather than via telephone and post. This will be done under the overall HMRC channel shift strategy.

We use a variety of powers to resolve debts. Some of these are specific to HMRC, such as coding-out – where money owed is recovered through a customer’s Pay As You Earn (PAYE) tax code. Some are restricted to a limited number of creditors, such as Taking Control of Goods, and some are available to all creditors, such as insolvency proceedings. We are committed to ensuring we use all these powers in a responsible way, but also maximising their successful use in appropriate cases. We will understand the optimum circumstances in which to use our powers, identify any gaps in our recovery powers and seek to close cases.

We intend to make our internal debt management processes as smooth and efficient as possible. Our colleagues need to be able to access customer data and record the outcome of interactions as quickly as possible to maximise their time on resolving debts.

Being adaptable

The objective for this pillar is to adapt to fluctuations in debt volume and changing priorities. This will help to meet our strategy goal by ensuring we are flexible enough to respond to external volatility and changes to the tax system.

The three sub-pillars to being adaptable are:

• forecasting and insight
• governance
• IT systems

We intend to understand what is driving customer debt behaviour using insight from external sources and to accurately forecast new tax debt and resolutions. Bringing these things together on a regular basis will ensure we have a combined view of what we expect to happen and why.

We will implement a governance structure that allows us to monitor the overall strategy and to be able to make decisions on how to respond to local and national emergencies.

We intend to make sure our IT systems have flexibility incorporated into them so that thresholds and eligibility criteria can be changed at short notice and with minimal cost.

Summary of strategy pillars

The graphic below shows a visual summary of our strategy pillars, their objectives and the sub-pillars which underpin them.

Being a responsible creditor

The HMRC charter sets out standards of behaviour and values to which we are committed when dealing with our customers. It is our commitment to giving our customers a service that is professional and based on respect and integrity. The HMRC charter applies to all customer interactions, including those related to debt.

In addition to this, we are committed to being a responsible creditor. This means that we clearly articulate the options and consequences to debtors, especially people who are in problem debt. We will continue to champion industry best practice and the Government Debt Standard and Debt Fairness Charter so we can ensure equitable outcomes for both customers and the Exchequer.