DMBM605010 - Pre-enforcement: Preparing a case for enforcement: Debt Pursuit Strategy

The majority of this manual will be archived on 1 July 2024. If there is content within this manual you use regularly, email hmrcmanualsteam@hmrc.gov.uk to let us know.

DMB adopts a fresh approach to securing cashflow to the Exchequer that supports the HMRC compliance agenda

DMB is moving from a 'one size fits all' debt pursuit strategy and we are adopting a more intelligent approach to the pursuit of debtors, to support our longer term direction.

The approach will put debts into segments by customer type and value, rather than treating all debts in the same way, regardless of type or value.

This approach will:

• continue to use the appropriate action to pursue all debts by customer type and/or value
• ensure that DM continues to collect nearly 99% of all its collectible debt
• extend the active campaigns we undertake to ensure that no debtor becomes complacent
• make it fair for those who pay their tax on time; and
• build on existing best practice.

Our approach will specifically support compliance activity and we will be using the new Key Performance Indicators (KPIs) that we have been developing with DMB staff to monitor performance so that we can spot and counter any negative impacts. We will publish information about the KPIs on the DMB site.

What does this mean in practice for DMB?

This strategy supports compliance, deals with the risks of deliberate non-payment and is based on value for money to pursue debt by value and customer.

This strategy supports the current approach whereby debt is pursued quickly; DMB recovers around 50% of debt within three months of receiving it. Uncollected debt will flow to the existing local debt pursuit offices and the action taken will be determined by value and/or by customer type.

Enforcement through courts will continue in all appropriate cases to protect cashflow and/or to counter any habitual defaulters and deliberate non payers. For more information on this see DMBM605450.

Enforcement action through the courts and distraint remains a key and essential tool for DMB but it is not to be used as an automatic default activity.

The approach outlined is an important step towards our objective of being a debtor focused organisation that secures early payment in the most cost effective way. And it will help us to be an organisation that:

• manages our current workloads in a proactive, consistent and targeted way to:

• reduce waste caused by duplication of effort in respect of the same customer and
• provide an effective return on costly enforcement work

• provides relevant training to ensure that Debt Management staff have the necessary skills
• increases and extends the current series of targeted campaigns to ensure that no one who owes HM Government can become complacent regardless of the sum they owe
• ensures that DMB can continue to deliver the collection of 99% of all debts due for collection and provide that debts are only written off in the right cases and at the right stage in the process
• maintains and improves on our current performance whereby we collect about 50% of our debts within three months and nearly 75% within a year of getting them.

This approach requires significant effort and focus from staff at all levels. It also forms the foundations of our future approach based on the information that will emerge. They are tactical solutions in line with our overall and longer term strategy.

Debts of £500 and below

Following a successful trial in Newcastle of debts below £500 the Small Debt Unit was created. This was commissioned because of the high volumes of small debts and their low cash flow value. These debt items represent just 2% of the total debt outstanding in terms of value but around 40% of the total work items.

The aim of the unit is to identify linked debts and also take action to secure payment.

Our current IT does not give us a whole customer view of all debts and we wanted to understand how many small items could be linked with other debts due to HMRC. In the trial we saw significant levels of linked debts and that meant that we could be more efficient by taking a single coordinated approach.

Linking Direct and Indirect Debts

A second trial was run in Chesterfield and was linked to developing work on Adding Value in Bristol and Southampton. The aim and timescales are broadly similar to those applied to the small debt work but the significant difference is that linked debts above £500 were included in this trial. This proved to be another opportunity to improve our overall efficiency by reducing the number of separate contacts we have with the same customer.

The initial work in this area suggested a potential overlap rate of 40% based on a sample of all existing debts. Because of other work pressures, the sample in this trial was limited to new VAT debts. After two months, the linking rate was 31%.

There is ongoing research into the outcomes and of this trial looking at new ways we can improve the collaborative working for direct and indirect debts and how this will be implemented in the future.

So far some of the pre enforcement processes have been updated. These were incorporated into the Quality Gateway Checks. For more information see DMBM605110.

Quality Gateway

A review of current CCP processes has shown that around 20% of CCP action is unnecessary as the debt could have been cleared prior to enforcement action. Following this review we have introduced a Quality Gateway for all future court actions this can be found at DMBM605110.

We will be adopting a similar approach in the Small Debt Unit to ensure that debts passed to the local debt pursuit offices don’t include any elements that should be discharged.

Potential Court Proceedings

We will continue to use the courts to enforce debts in all appropriate cases but this will not be a default option. We will also ensure post judgment cases are enforced appropriately to ensure value for money.

Insolvency

Because of the high cost of Insolvency/Bankruptcy Proceedings we want to ensure that only appropriate cases are subject to this action.

Post Judgment Work

Our performance in this area is inconsistent and there is a backlog of work. We need to give priority to this work as it is a significant source of extra cash flow and because without the sanction that this area of work provides, the integrity of our process may be compromised with the consequent risk of reduced compliance. Further investigation is ongoing and we will continue the cleansing of these cases as part of the quality gateway review.

More explanation on these new processes can be found in the Quality Gateway DMBM605110.

Orders to Obtain Information

In many of the enforcement cases we currently resolve by Court Proceedings, we have had little constructive dialogue with the customer and often, they don't even attend the hearing. (This content has been withheld because of exemptions in the Freedom of Information Act 2000) 

Using an order to obtain information forces debtors to talk to us, which is particularly helpful in cases where we have struggled to make effective contact. It is also an opportunity to talk to the customer about all of their debts (though not necessarily through the judge). (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Other current activities to support the new strategy

DMB is working with the owners of the main heads of duty (VAT, SA, PAYE, TC etc) and other stakeholders to understand and monitor the effect of the new strategy on their tax take. Our KPIs are being actively developed and studied to ensure that they accurately reflect the performance of DMB and make more transparent the issues in our processes from end to end that create debt in the first place. This includes work with relevant stakeholders to deliver legislation that aligns our powers across the various taxes and deliver debts to DMB that do not have appeals or ongoing activities so that we can collect them quickly.

We are working across the current Debt Management network to optimise the levels of debt managed by each unit (putting work where we have the resources). We will continue to use short term tactical solutions to manage specific pressures. These tactical solutions will be consistent with the long term strategy and vision to transform DMB into the leading Debt Management agency of choice.

We will continue to use and accelerate the roll out of Adding Value so that DMB staff can help us identify the best way to maintain and improve on our activities now and in the future.

More information on these projects will be added as soon as the results are known.