HM Treasury's recent 'Policy Costing Document' published to accompany 2024 Autumn Budget contained two sentences which appear to have gone d by many financial commentators, being that: ‘The government is providing funding for 1,800 HMRC debt management staff to enhance HMRC's capacity to collect outstanding tax debts. Funding is provided for 1,200 existing staff to extend their work with HMRC, and 600 additional staff.’ It is anticipated that this additional funding for new recruits, alongside the modernising of operations through advanced technology and credit agency data, will produce an additional £2 billion annually by 2029/30.
Collection process
The method of collecting unpaid tax varies depending on the type of tax owed. For instance, if the underpayment concerns PAYE tax and the taxpayer is not self-assessed, collection will typically occur through a reduction in the tax code, provided the liability is £2,999.99 or less. For amounts above this threshold, HMRC will request direct payment.
If payment is still not forthcoming, a simple assessment letter will be issued, placing the taxpayer within self assessment. A late payer within the self assessment system will receive a series of paper reminders and telephone calls usually starting with a private debt collection agency. If payment remains outstanding, an officer from the Debt Management Department can contact the taxpayer to offer a 'Time to Pay' (TTP) arrangement, allowing for agreed monthly payments until the debt is settled. While interest will still be charged during this period, no penalties will apply unless the TTP arrangement is made more than 30 days after the due payment date.)
Since 2015, HMRC has had the power to collect payment of ‘significant debts’ (defined as those exceeding £1,000) directly from a taxpayer's bank current or savings accounts (including ISAs). After the debt has been recovered, £5,000 must remain across all accounts (including joint accounts) above normal calculated expenses.
Enforcement officers
If payment is still not forthcoming, HMRC may commence enforcement action. HMRC uses both internal enforcement officers and external debt collection agencies, depending on the type and size of the debt. Internal enforcement officers typically manage more complex or higher-value cases requiring careful legal oversight.
When an HMRC enforcement officer visits, the taxpayer will be asked to sign a ‘controlled goods agreement’ (CGA) giving the taxpayer a further seven days to pay. If payment is still not made, the enforcement officers will return to confiscate assets and auction them to settle the debt, charging a fee of £110, plus 7.5% of the amount of the debt over £1,500. Private debt collection agencies cannot deliver a CGA.
HMRC enforcement officers lack the power of eviction (unlike High Court enforcement officers who carry writs of possession) or arrest. However, they can pursue a charging order against a property, which secures the debt and permits forced sale through the courts if unpaid.
Chasing directors
Despite the protection companies receive under the 'veil of incorporation', HMRC can pursue a dissolved company for unpaid taxes. If the company cannot pay, HMRC may take legal action against the directors especially if they are found to have engaged in wrongful trading. HMRC typically targets directors first since shareholders generally have limited liability and are not personally responsible for company debts beyond their investment in shares. Nonetheless, exceptions exist for fraudulent behaviour or wrongful trading (e.g., if funds were misappropriated).
Practical point
The 'Measuring Tax Gaps 2025 report' published in June 2025 states that for the 2023/2024 tax year, HMRC collected approximately 94.7% of the total theoretical tax liabilities, amounting to £829.2 billion out of an expected £876 billion. This suggests that 5.3%, or £46.8 billion, went unpaid, representing the Chancellor’s current 'tax gap'.
There are no up-to-date details as to how many taxpayers are currently within the Direct Recovery of Debts process.
