The lockdown which started in March 2020, and has carried on in one form or another ever since, has altered the way HM Revenue and Customs (HMRC) look to recover money owed to them by taxpayers and businesses.
Use of traditional debt collection powers ended last year due to Covid health concerns. However, this hasn’t stopped HMRC recovering money owed to them by debtors. They have increasingly done this by deducting money directly from salaries and pension incomes using a digital procedure known as “Coding Out”. This debt recovery method has become increasingly popular with HMRC and indeed the government last year handed the agency enhanced powers to use this recovery tool against taxpayers who failed to pay what they owe.
This recovery mechanism works by forcibly changing the tax code of the debtor to dock money from wages to recover money owed. Last year HMRC changed the tax codes of 134,000 debtors and collected more than £54 million in unpaid bills. To put this in to context this is an increase of £74,000 from the year before. The tax code changes effectively mean the recipient worker receives less in their monthly salary payment, as HMRC deduct an additional amount due to ‘coding out.’
HMRC can take between £3,000 and £17,000 from annual earnings using its Coding Out system at any time in the financial year. A limited £3,000 applies to those who earn up to £30,000 and it increases by £2,000 for every £10,000 extra earned. £17,000 is the maximum limit and applies to anyone who earns more than £90,000 each year.
Tax debts have spiralled during the lockdown to more than three time higher than pre-pandemic levels. In addition, HMRC made more than 7,000 people bankrupt between 2016 and 2020. But the agency says it uses bankruptcy only as a last resort if it felt debts were deemed irrecoverable.
Other recovery methods, such as bailiff action, were used much more frequently by HMRC up to March 2020. Another recovery method by HMRC is the use of their in-house field officers. Field officers call at debtors’ addresses requesting payments. Prior to lockdown this recovery action was used by HMRC in hundreds of thousands of cases each year.
However, as mentioned previously this line of recovery was drastically reduced post lockdown and last year only 3,600 people had face to face conversations with HMRC as their offices resorted to using the phone much more because of Covid.
This just goes to show HMRC can be quite flexible and will adapt to recover money owed to them, using different methods of recovery.
It is consequently extremely important that if you are struggling to make a payment to HMRC on time you should try to avoid any enforcement action by contacting them and opening the line of communication to explain your position. Around 665,000 people struggling to pay their tax bills have payment plans in place with HMRC which are known as a “Time to Pay” agreement.
If you are struggling with HMRC debts or with any other unsecured creditor then it is vitally important that you get the appropriate debt and insolvency advice as there are options available to you including Individual Voluntary Arrangements “IVA” and debt management.