Collection, debt and COVID-19 research

Question 1

1.  Executive summary

Accepted Answer

1.1 Background

The COVID-19 pandemic forced a lot of businesses into debt and during this time HMRC paused most of its debt collection activity. HMRC sent fewer letters and ceased field collection and enforcement activity almost entirely.

HMRC commissioned this qualitative study to research the experiences of HMRC debtors when engaging with HMRC, the impact of COVID-19 on these businesses, the experience and impact of HMRC communications, and barriers and drivers of future repayment.

The research builds upon previous research which looked at PAYE debtors and has increased scope to include VAT and Corporation Tax debtors as well as PAYE.

1.2 Objectives

This research had 3 core objectives; these were to:

provide strategic supporting evidence for the development of HMRC’s strategy on customer response and support and provide a greater understanding of how campaign activity influences debtors’ behaviour in terms of future compliance
build on the previous iteration of this research, Debt Management Segmentation, to inform Propensity to Pay across businesses
explore the impact of COVID-19 across HMRC’s current customer segmentation to understand how it has impacted their business

1.3 Methodology

The research was designed using a qualitative approach with semi-structured interviews, with the intention of enabling detailed and nuanced views around business perception of HMRC’s approach to collection and debt; to enable greater insight into what improvements could be made.

A total of 90 qualitative interviews lasting around 60 minutes were conducted, across 9 different segments defined by type of debt and the impact the COVID-19 pandemic had on the business.

Fieldwork was conducted between Tuesday 13 December 2022 and Wednesday 1 March 2023.

1.4 Impact of COVID-19 on business

Businesses felt supported throughout the pandemic by government and were happy with the schemes available to them. The support schemes were seen as being wide-ranging and easy to apply for and this helped ease the effects of the pandemic. Many businesses utilised at least one government support scheme.

Mostly, indicators provided by HMRC of the impact of COVID-19 on businesses were aligned with customer perspective, however, some customers reported experiences that did not align. The time lag between these indicator scores being produced and the timing of this research was likely a contributing factor. Overall, perceptions of COVID impact were varied and impact was related to a range of factors including sector, the level of restrictions during the pandemic and the ability of the business to diversify. A few businesses diversified so that they could keep trading.

Many businesses had recovered from COVID-19 but were now concerned about the cost-of-living crisis and rising inflation. Other businesses cited macroeconomic factors such as the UK leaving the European Union as a challenge.

1.5 Circumstances of the debt

Cash flow issues were the most common cause of debt; these often were not related to the pandemic. Those that did cite the pandemic as a factor to their debt usually cited repayments on loans they had taken out during the pandemic. Other factors that put businesses in debt were administrative or technical errors and accidents or mistakes that meant payments weren’t made. Some businesses did not believe they had entered into debt at any point.

1.6 Experiences of how the debt was communicated

Businesses became aware of their debt in 3 main ways:

they were aware of the debt before receiving communication from HMRC often through internal checks
they became aware after receiving a letter from HMRC
they were made aware via their accountant

Most businesses received a letter from HMRC regarding their debt and were generally positive about the letters they received, with some mentioning the tone had improved from previous times they had been in debt. Other businesses felt that HMRC could still improve on their tone, especially for businesses who did not expect to receive a letter as an unknown error had occurred.

Several businesses had contacted HMRC support advisers regarding the debt, though the level of comfort they felt doing so varied. Many businesses felt that the advisers were helpful, though a small number, especially those who disputed the debt, were less positive.

Some businesses commented that the tone and understanding of the advisers had led to a more positive experience than they had faced in the past, though others mentioned that the understanding shown varied depending on which adviser they spoke to.

The most common negative aspect of calling HMRC advisers was the length of time it took for them to get through to somebody and the lack of continuity if they had to contact HMRC more than once about the debt.

It was less common for businesses to have received an outbound call from HMRC and where experienced, there was again a mix to the level of comfort they felt receiving the call. The timing of the call as well as the tone were generally fine.

1.7 Perceptions of HMRC as a result of experience

Businesses often reported a positive experience of dealing with HMRC throughout the debt collection process and many felt they were treated fairly. Several felt that HMRC were sufficiently supportive and empathetic, but those in debt due to genuine mistakes were less positive.

Businesses tended to feel that HMRC could improve the length of time it took to get through to them on the phone, with some reporting that the amount of time to get through had become worse in recent years.

Smaller businesses felt HMRC could be doing more to support them and that they expressed an opinion that HMRC were more lenient on larger businesses. Some believed that larger companies could play the system and deprive HMRC of vast sums of money.

Generally, businesses’ experience had not impacted their overall perception of HMRC, while some came away with a more positive perception. A few came away with a negative perception, and this was mainly businesses who felt they were in debt due to a HMRC error.

1.8 How experience and perceptions impacted business response

Letters were effective in prompting all types of businesses into action, including those who were aware of the debt before the letter and those who became aware of the debt because of the letter. Those that did not act on the letter usually had repayment arrangements in place already or were not in a financial position to act on the letter.

A call from HMRC was less effective in prompting action; businesses that received calls were usually further along their debt journey and were aware of what they owed but were not in a position to pay it.

Experiences of setting up a payment plan were usually positive and many commented that advisers were reasonable when setting the terms. A small number were able to negotiate multiple plans. Some were unhappy with their repayment plan, stating that they still felt like they were being punished, and others felt there could have been more flexibility in the plan.

In most cases, paying off the debt remained a priority to businesses and motivations for paying off the debt were multi-faceted and included the following reasons:

moral obligation to pay debt
risk to financial stability of the company
acceptance that all debt must be paid
concerns about interest and penalties

Some businesses prioritised the debt over paying their suppliers and other financial obligations, while for others the debt sat lower down their priority list. These businesses said they needed to focus on paying staff, suppliers and rent before they could pay HMRC because these were more vital to the survival of their business.

1.9 How customers feel HMRC could improve their experience

Many customers were happy with their communication from HMRC, but some suggested other communication methods would have made it easier to pay quickly. These included emails and notifications on the HMRC portal. Many businesses, that did not receive a call from HMRC, said they would have preferred to be called because they felt there might be a greater level of understanding over the phone.

Several businesses expressed their concerns about receiving letters, because of their unreliable nature and the time it takes for them to reach the recipient. Some businesses were also concerned about the possibility of scams.

A few businesses mentioned that they would like to have 1 point of contact at HMRC to discuss their debt. This was particularly mentioned by businesses in multiple forms of debt who had to contact as many as 3 different HMRC departments to discuss their financial situation.

Some businesses felt HMRC could have been clearer in their communications about what was owed and where the discrepancy occurred, and a small number mentioned they would have liked more time to appeal or assess the situation before penalties and interest were introduced.

There was also some frustration at being punished for a genuine mistake or error and felt that HMRC’s approach was more severe than necessary. However, other first-time debtors felt they received a more lenient response because of their situation.

Question 2

2.  Introduction

Accepted Answer

2.1 Background

During the COVID-19 pandemic, HMRC paused most of its debt collection activity, sending fewer letters and ceasing field collection and enforcement activity almost entirely. During the pause in debt collection, HMRC staff were moved to support taxpayers applying for employment support grants, and HMRC changed how tax debt was collected, including the tone of communications and the pace of pursuit.

Against this backdrop of growing business debt more generally and a difficult financial period for businesses, growing debts to HMRC, and the changing approach to HMRC communications, this research was commissioned. It builds on the findings from the previous research study which only looked at PAYE debt management segmentation. This new research includes interviews among businesses across all 3 taxes, so also covering VAT and Corporation Tax debtors in addition to PAYE.

HMRC commissioned this qualitative study to provide information regarding the experience of HMRC debtors when engaging with HMRC, the impact of COVID-19 on these businesses, the experience and impact of HMRC communications, and barriers and drivers of future repayment.

2.2 Objectives

This research had 3 core objectives; these were to:

provide strategic supporting evidence for the development of HMRC’s strategy on customer response and support and provide a greater understanding of how campaign activity influences debtors’ behaviour in terms of future compliance
build on the previous iteration of this research, Debt Management Segmentation, to inform Propensity to Pay across businesses
explore the impact of COVID-19 across HMRC’s current customer segmentation to understand how it has impacted their business

More specifically, the research answers the following questions:

how has COVID-19 impacted the businesses of first-time debtors?^{[footnote 1]}
what can HMRC do to help first-time debtors manage their debts and prevent them from becoming habitual late payers?
do debtors have an expectation of communications with HMRC and if so, what would this look like?
how did customers feel about the communications around debt, both in terms of letter and telephone contact they received?
what have debtors’ experiences been like when dealing with HMRC?
what drives debtor engagement and payment?
why do debtors delay payment?
how can HMRC encourage debtors to make payments online?
how has the shift in tone and message in HMRC communications since COVID-19 affected debtors’ experience and behaviour?

2.3 Methodology

Research Design

A qualitative approach, utilising semi-structured interviews, was considered to be more appropriate to deliver useful and actionable insight to HMRC. The qualitative approach enables the research to gather more detailed and nuanced views around business perception of HMRC’s approach to collection and debt to enable greater insight into what improvements could be made.

Sampling

Sample was provided by HMRC to IFF Research, consisting of businesses who have had either a Value added Tax (VAT), Corporation tax (CT) or Pay-as-you-earn (PAYE) tax debt with HMRC. Within the sample was also the perceived level of impact COVID-19 had on these businesses: Low impact and High / medium impact, however, some businesses were unscored.

Fieldwork

A total of 90 qualitative interviews lasting around 60 minutes were conducted between Tuesday 13 December 2022 and Wednesday 1 March 2023. The profile of achieved interviews is shown in Table 1. Quotas were initially set at 10 interviews per group, however, some audiences were difficult to engage and several interviews fell through at short notice. In response to this, where quotas were unlikely to be achieved; additional interviews were achieved across other quotas where sample was available in order to reach the overall target of 90 interviews.

Table 1. Profile of completed interviews

COVID-19 Impact	Type of debt	Completed	Completed (%)
High / Medium Impact	VAT	10	11%
High / Medium Impact	CT	8	9%
High / Medium Impact	PAYE	10	11%
Low Impact	VAT	11	12%
Low Impact	CT	11	12%
Low Impact	PAYE	10	11%
Unscored	VAT	10	11%
Unscored	CT	11	12%
Unscored	PAYE	9	10%
Total	ALL	90	100%

Analysis

Analysis was undertaken using a framework analysis approach. Framework analysis is a useful approach to research that has specific questions and a pre-designed sample. The approach consisted of the following stages:

familiarisation of the data
developing a thematic framework to analyse the data
indexing
interpretation and mapping: producing a blueprint

At the end of fieldwork, following further data familiarisation with all interviews, final analysis was conducted to compare initial themes with anything that had come out of the later interviews. Any inconsistencies between interviews were then discussed and a consensus of key narratives was reached to form a blueprint for the report.

As this is a qualitative research, its purpose is to provide an in-depth understanding and reflect the variety of experiences of businesses with varying types of tax debt with HMRC. It is not intended to be statistically representative, and therefore findings should not be generalised to the wider population of businesses who have debts with HMRC or the business population more broadly.

All findings are self-reported, allowing research to be collated across a variety of businesses. Therefore, responses reflect respondents’ own views and beliefs. As a result, these could be influenced by certain biases, such as through social desirability, and may not reflect an objective truth. Social desirability may also have impacted the current study since stakeholders were interviewed on behalf of HMRC. To mitigate this effect respondents were reassured that the research was being conducted by IFF Research, an independent market research company.

Due to the relatively high number of interviews to analyse, IFF Research chose to summarise the experiences of businesses through common and more prevalent themes and insights when reporting the findings. In doing so, some of the nuance observed between participants may be lost. This should be considered when interpreting the findings.

Question 3

3.  Impact of COVID-19 on business

Accepted Answer

This chapter covers the perceived impact of COVID-19 on businesses, the government support utilised, and their post COVID-19 recovery and issues.

3.1 Perceptions of COVID-19 impact

Mostly, indicators provided by HMRC of the impact of COVID-19 on businesses were aligned with customer perspective, however, some customers reported experiences that did not align. The time lag between these indicator scores being produced and the timing of this research was likely a contributing factor.

Overall, perceptions of COVID-19 impact were varied and impact was related to sector, the level of restrictions during the pandemic and the ability of the business to diversify. Some businesses reported minimal impact by the pandemic, or even experienced increased business, for example in the case of a garden centre and landscape gardening business.

“We were busy because people wanted to go in their gardens. People suddenly realised they had gardens.” (VAT debt customer)

Others, where COVID-19 had a negative impact, cited operating restrictions, and mandated closures as a primary cause of the debt. Those in the hospitality sector particularly had a negative impact, however, government support alleviated some of this impact.

“Everybody had to stay at home, and no-one was allowed out.” (PAYE debt customer)

3.2 Government support utilised

Many businesses felt supported throughout the pandemic and praised the government schemes available. The range and scope of the support schemes available and the ease of application were both cited as key strengths which helped ease the effects of the pandemic and associated restrictions on businesses.

“I just thought that the government was brilliant during that period, and everybody was understanding.” (Corporation Tax debt customer)

Businesses frequently used government support schemes during the pandemic with some using multiple. Most commonly, businesses mentioned using the furlough scheme at some point during its availability.

“Furlough was great for us while we needed it. We were all set up on payroll and we did that digitally so that was quite seamless.” (Corporation Tax debt customer)

Some had received a bounce back loan from the government and/or received a grant from the council.

“It was offered [COVID bounce back loan], so we took it, it was just cashflow, it was cheap interest.” (VAT debt customer)

A few businesses diversified in order to keep trading. For example, 1 business manufactured signage and produced digital printing prior to the pandemic. During the pandemic they diversified and started manufacturing COVID screens as demand for their other products reduced. This allowed them to maintain staffing levels alleviated the need to furlough any staff.

“The business wouldn’t have survived if we hadn’t diversified into something else [manufacturing COVID screens].” (PAYE debt customer)

3.3 Post COVID-19 recovery / issues

Many businesses reported having recovered from the pandemic and those in recovery described the effects of COVID-19 as ‘behind them’.

“Things are heading in the right direction.” (PAYE debt customer)

However, businesses were experiencing other challenges. Concern for many, including those still recovering from COVID-19, had now shifted to the effects of the cost-of-living crisis and rising inflation. Some said this is having and will have a greater impact on their business than COVID-19, with others reporting this as a threat to the continuity of their business.

“The year after, the cost of materials hit us like mad. We were pricing these jobs in 2021 and they accepted them in March [2022], then the prices went up and up and up. We were working at a loss.” (PAYE debt customer)

“How can you pay HMRC money? Wages have gone up 30%, also rent has increased.” (Corporation Tax debt customer)

A few businesses also commented on other macroeconomic factors, such as the UK leaving the European Union, causing continuing adverse effects to their business.

“Product demand has fallen due to Brexit. We’re actually having customers say to us now we don’t want to deal with you in the UK.” (Corporation Tax debt customer)

Whilst some businesses were positive and held an optimistic view of the future post COVID-19, the culmination of these other factors contributed to an overall sense of caution about the future.

Question 4

4.  Circumstances of the debt

Accepted Answer

This chapter explores the circumstances of the debt businesses had with HMRC, what caused the debts to occur and how businesses responded.

4.1 Causes of debt

Most commonly, the primary reason for their debt with HMRC was cash flow issues. Cash flow issues arose from a variety of causes, however, few stated this related to the pandemic and its effects. Among those who did, this was mostly due to repayments on loans taken out due to the pandemic.

“It’s all about cash flow. Sometimes you have it and sometimes you’re late. It’s all about timing.” (VAT Debt customer)

“That VAT money was being used as working capital and it wasn’t being put into dedicated account.” (VAT debt customer)

Other businesses mentioned their sales being down due to constricted demand linked to the cost-of-living crisis, rising costs, or because customers were taking longer to pay.

Several businesses cited administrative or technical errors as the cause of their debt to HMRC. These were frequently caused by a lack of awareness of when a payment was due. Some explained that delays in communication from their accountant caused the error or that their accountant had not made the payment when they expected them to.

“I thought someone else had paid it… Normally [the agent] would instruct one of the directors to pay it and they did not.” (Corporation tax debt customer)

Some businesses had accidentally made the payment late; some explained they experienced issues with the payment going through which they put down to a banking issue. Others mentioned clerical errors by inputting the wrong reference number when making the payment or forgetting to submit a zero VAT statement. Meanwhile, a few businesses were in debt due to a miscalculation of their tax bills.

“I can’t remember 100%, [I] either made a payment and it was late, or I paid less than I had to, but it was just over 1 month’s payment.” (PAYE debt customer)

Commonly these businesses paid off the debt or entered into a payment plan with HMRC as soon as they became aware of the error and debt.

“It was paid as soon as it came to light. I think they sent us a letter in the post, and we slapped our hands on our foreheads.” (Corporation Tax debt customer)

A small number of businesses believed they did not go into debt at any point. They received communication of a debt however they believed this was an error on HMRC’s part and all their tax was paid on time and in full.

“The thing is I’m not sure whether I am in debt or not. All we have received was a letter threatening a surcharge four late payment of a VAT return, we have no further correspondence from them we’re unsure what the situation is.” (VAT debt customer)

“We have paid the debt and we paid it at the time it was due.” (PAYE debt customer)

Amongst this small number of businesses, some disputed the amount owed. For example, 1 business with a Corporation Tax debt claimed the tax should have been offset against an R&D claim and the debt therefore was incorrect and not owed.

Question 5

5.  Experiences of how the debt was communicated

Accepted Answer

This chapter covers how businesses became aware of their debt and their experience of the different methods of communication exchanged with HMRC.

5.1 How businesses became aware of their debt

Businesses became aware of the debt to HMRC in 3 main ways. Some were aware of the debt before receiving any communication from HMRC, sometimes through checking their HMRC account.

“I’m aware of our liability to HMRC and any point in time as I review our numbers … it is part of my operational role to make sure cash is flowing. The forecast suggested we were going to be tight.” (VAT debt customer)

Some businesses became aware through receiving a letter from HMRC. Some of these only became aware via a letter from HMRC because an unknown error had occurred, sometimes made by the respondent or sometimes due to an error on HMRC’s part.

“The first thing we knew about it was when a letter came through from HMRC saying ‘You are now overdue for £x’.” (PAYE debt customer)

Meanwhile, other businesses became aware via their accountant who handled the tax affairs on their behalf.

“Well you know you have a debt, because our accountant tells us what the salaries are and what we have to pay in the next month for PAYE or VAT and if you can’t pay it you know you’re in debt.” (VAT debt customer)

5.2 Businesses’ experience of HMRC’s letter communications

It was common for businesses to have received a letter from HMRC regarding the debt, with some reporting receiving multiple.

Businesses were generally positive about the letters received. They generally thought the letters were easy to understand and thought the tone was fine and was not threatening (albeit quite formal but as they would expect from HMRC). Some felt the tone of HMRC letters had improved from those they had received in previous years.

“Factual. It wasn’t a harsh letter, in fact there’s a sentence on there which said ‘we know many of our customers are facing financial difficulties due to the pandemic and we’re here to help.’ That’s a helpful sentence and reassuring that HMRC is on your side.“ (VAT debt customer)

“To be fair to HMRC, my overall feeling or opinion on them is that they are actually far more considerate and caring compared to what you are lead to believe HMRC are like. The way they came across in communications has been very reasonable and understanding…They haven’t come down on me like a tonne of bricks for being a few months late paying so that’s been appreciated.” (Corporation Tax debt customer)

However, some businesses felt the tone of the letters could be improved, particularly if they were not expecting the letter. In addition to this, businesses that were more worried about the debt sometimes viewed the tone more negatively. Those that highlighted their concern over the debt tended to be those with a medium-high COVID impact score on the sample.

“They are not written from a helpful perspective…they are written from a debt collection perspective. You owe us this money, pay it. That’s how they come across.” (PAYE debt customer)

Most businesses felt there was nothing missing from the letters that they would have liked to be included. However, a few said that it would have been useful to have some information on different ways that the outstanding debt could be repaid, for example setting up a repayment plan. It is worth noting that some businesses reported that the letter they received said they could contact HMRC to set up a payment plan if that would be helpful. Therefore, it is possible that this information was missed or that they could not recall.

There were a couple of occasions where the letters were seen to serve no purpose, as they had received a letter about a VAT debt when the business was either exempt due to the nature of the business or they were not earning enough.

“I feel the system is a bit of a nonsense. I don’t feel it’s an appropriate reaction. There’s no account taken of the fact that my business was totally zero-rated new build development. I’ve never since the company’s been set up, I’ve never paid a penny of VAT.” (VAT debt customer)

There were also a couple of mentions of businesses receiving a letter after the debt had been paid.

5.3 Businesses’ experience of contacting HMRC support advisers

Several businesses had contacted HMRC support advisers, with some reporting feeling more comfortable about doing so than others. Positive reports of contacting HMRC by phone were more common, however, some explained there were both positive and negative aspects, and others reported a more negative experience.

Several businesses felt that the adviser they spoke to was helpful and most reported being able to set up a payment plan if desired. However, a few respondents who were disputing the debt said the adviser they spoke to was unhelpful. They had occasions where they were not confident that the person they were speaking to understood what they were talking about in terms of the technicalities of their tax affairs or an understanding of tax in general. For example 1 respondent who was disputing the PAYE debt as they had paid it said that the adviser was unable to find the payment they had made. The adviser claimed not to have access to the appropriate system to check this. The call ended with the adviser going to investigate with colleagues further, however, no call back or follow up communication was received.

Some businesses felt the tone of the adviser was understanding and some commented how their experience was more positive than when they have contacted HMRC in the past.

“Unlike how they have been in the past, whether it was just that particular person…but they were far more sympathetic, far less ‘you have got to make a payment right now’. This time it was ‘I’m sorry this is happening’…so yes very positive.” (VAT debt customer)

However, some businesses highlighted that the tone of the adviser could vary depending on who you spoke to, which causes some apprehension around making the phone call. Negative aspects of contacting HMRC support advisers most commonly related to the length of time it took to get through to somebody and the lack of continuity if they had to contact HMRC more than once about the debt. A few expressed their frustration as they were part way through resolving the issue when they got cut off.

“Getting through could have been over a week putting one call in and being on hold for an hour and then trying again, and again…Once I got through the experience was generally good and the person was generally understanding and empathetic.” (Corporation Tax debt customer)

“One is the length of time on the phone, 2 is in when you get through it is a wee bit hit and miss as to who you get. Some people are quite helpful and are willing to speak to you, others you find that they can’t wait to get you off the phone. When I eventually got through to them I was given another number to ring which took 45 minutes.” (VAT debt customer)

5.4 Businesses’ experience of receiving an outbound call from HMRC

Some businesses had received an outbound call from HMRC, however this was a less common form of communication.

Businesses were divided between those that were comfortable receiving a call from HMRC, while others were less so. A couple highlighted the negative place they were in mentally at the time of the call. A couple of respondents chose to refer the call to their accountant instead.

Respondents generally felt the timing of the call was fine, as was the tone of the person contacting them in most cases. One respondent highlighted that the tone of HRMC staff contacting them was better than that of the support advisers when they phoned HMRC.

The call generally consisted of HMRC highlighting the amount of money owed, asking when they think they can pay it and whether they needed to set up a payment plan.

“When they called they were really nice asking what we need, when we think we will be able to pay. Whenever you get a call, you know it’s HMRC by the number displayed - anxiety kicks in, but they will alleviate your worries during the call.” (VAT Debt customer)

Question 6

6.  Perceptions of HMRC as a result of experience

Accepted Answer

This chapter explores the overall experience businesses had when dealing with HMRC throughout the process, how their experience could be improved, as well as the impact their experience had on their general views on tax and their perception of HMRC.

6.1 Overall experience of dealing with HMRC

Businesses often reported a positive experience of dealing with HMRC throughout the process. Many businesses felt that they were treated fairly by HRMC. They were pragmatic in that they knew the debt had to be paid.

“Absolutely fine, it’s all quite matter of fact. You know you have to pay your taxes. They didn’t overly hassle me. I was expecting to receive communication from them. It wasn’t threatening or inappropriate. It offered support if needed and said they understand the issues businesses are facing. So I would say it’s been positive overall.” (Corporation Tax debt customer)

However, those in debt due to a genuine mistake were less positive, explaining how it caused them stress.

“The only thing I don’t like about HMRC…this was a genuine mistake…the threat of having interest and everything else if you are in a situation where you couldn’t pay it….would upset some people…you never know what some people’s situation is like.” (PAYE debt customer)

Several businesses felt that HMRC were sufficiently supportive and empathetic throughout the process. Some that had prior experience of contacting HMRC felt this had improved, highlighting a difference in tone and approach. However, others felt HMRC were very matter of fact and were unsympathetic to their situation.

Where businesses were satisfied that HMRC made it easy to pay the debt, they were pleased they were able to set up a repayment plan. However, as covered below, there were others that felt the payment plan could have been more flexible and were less happy about the fact they had to pay interest on the money owed or that a fine was imposed.

6.2 How could support and experience could be improved

Reasons provided by those reporting a more negative experience tended to be related to the length of time it took to get through to HMRC by phone or because they ended up in debt due to some kind of error. A few businesses felt the time it takes to get through to a HMRC adviser had become worse in recent years.

“The main thing with HMRC is they just don’t seem to be enough people dealing with the phone calls. You can wait on the phone for an hour / an hour and a half, and when you are trying to run a business that is not great.” (PAYE debt customer)

Some businesses said they would have appreciated having a particular case worker at HMRC to deal with. This would alleviate the need to be transferred to someone else and it would make it easier for businesses who needed to contact HMRC about the debt more than once.

The experience of speaking to a HMRC adviser could vary depending on the support adviser you speak to, with some saying they felt the HMRC was quite cold and questioned why they had not paid.

Some felt that HMRC could be more supportive of smaller businesses, by allowing them more time to pay without interest accruing. Some believed that HMRC are more supportive of larger businesses. Moreover, some believed that larger companies could play the system and deprive HMRC of vast sums of money.

“It would be easier if the Inland Revenue were a bit softer on people who have got a debt situation. The daily fines that occur and the interest are quite ludicrous really.” (PAYE debt customer)

6.3 Impact of experience on views towards tax and HMRC

For many businesses, their recent experience had not impacted their general views on tax. However, for some, their experience had led them to feel that paying tax was stressful or that they pay too much tax. One business said they felt businesses should be taxed more on profits rather than paying so much VAT. Another business said there should be more support for smaller businesses in the form of tax reductions.

“I think this country in general has to pay more in tax than any other country; everything we buy, use, sell, it all has to be taxed one way or another… there is VAT and taxes on everything. It really isn’t your money when you get paid, it’s HMRC’s money.” (VAT debt customer)

In general, businesses’ experience had not impacted their overall perception of HMRC. A few said it confirmed their view of HMRC.

“It actually confirmed that if you’re straight with them, they’ve always been remarkably helpful.” (PAYE debt customer)

For some, their experience of dealing with HMRC had resulted in them having a more positive perception of HMRC due to how they handled the situation. HMRC were deemed to be more approachable and sympathetic than in previous years. A few said they would feel more comfortable contacting HMRC as a result of their experience contacting HMRC’s support advisers.

“The way they have gone about things has been far better and far more positive and supportive than the stereotypical view of HMRC I would have had growing up.” (Corporation Tax debt customer)

However, a few businesses had a more negative perception of HMRC as a result of their experience, mostly among those who were in debt due to a HMRC error. They subsequently felt that HMRC were inefficient and that 1 department does not know what another is doing.

“It’s changed my perception. My perception was that HMRC was a very efficient and organised institution and it’s clearly not.” (PAYE debt customer)

Question 7

7.  How experience and perceptions impacted business response

Accepted Answer

This chapter covers how the experience and perceptions of businesses impacted their response to paying back the debt. It first discusses how effective the letters and calls were as a prompt to action, then it focuses on businesses’ experiences of setting up payment plans, before finally discussing the impact that the experience had on businesses’ priority towards paying the debt.

7.1 Functions of letter and calls as a prompt to action

The letters were effective in prompting businesses into action, however, calls were usually received at a later part of the experience and were less effective due to the financial situation of those who were called.

7.1.1 Responses of businesses prompted to action by the letter

As mentioned in the previous chapter, most respondents received a letter from HMRC and in most cases these functioned as a prompt to action, especially among businesses who were able to pay the debt. All the businesses that agreed they were in a debt and were in a position to pay, contacted HMRC soon after receiving the letter and cleared their debt.

“We just paid it when it came in… I just sent him [Finance Director] an email and told him what it was for, and he said that’s fine just pay it…it was done within the week of getting the letter.” (Corporation Tax debt customer)

“[After receiving the letter] We raised the cheque for the interest amount and sent it back to HMRC with their payment slip with the covering letter and that’s it.” (PAYE debt customer)

Many of the businesses were unaware that they were in debt when they received the letter and so spent some time confirming internally or with their accountant that the amount being requested was accurate, before they contacted HMRC.

“I went to my Finance Director and said ‘do you know about this?’ And he said no, so we contacted the accountant and he said he had sent the paperwork, so he just sent us another copy. The figures were ok and so we just paid it really.” (Corporation Tax debt customer)

A few businesses were already aware of their debt situation but had not got round to dealing with it by the time they received the letter. The receipt of the letter encouraged them to take action.

“I went online and paid the outstanding balance the same day I received the letter. It was just 1 of those things. I knew it needed to be done, the letter just prompted me to think ‘oh, right, yes I need to do that!’” (PAYE debt customer)

“Once the letter arrived, a subsequent phone call was made to HMRC quite promptly where a payment plan was discussed. The guys that we spoke to on the phone, were willing to discuss payment, i.e. a payment plan over a reasonable time.” (Corporation Tax debt customer)

For a few businesses, the letter prompted them to chase suppliers and clients who owed them money. As mentioned earlier in the report, these were businesses who had got into debt due to cashflow issues.

“The letter is a small prompt. It did make me chase up the customer who owes us money but I already knew that I needed to do this anyway.” (VAT debt customer)

A small number of businesses took action but did not inform HMRC; they did this by communicating internally how they intended to pay but did not feel it was necessary or did not have the time to contact HMRC.

“We decided that we would pay one third immediately and the remainder over the next three to four months in instalments as quickly as we could depending on cash flow available. But we didn’t communicate this to HMRC and that was the learning curve…Everyone’s busy and we don’t the available time to pick up the phone and wait at least an hour…” (Corporation Tax debt customer)

7.1.2 Reasons for taking no action following letter

While most businesses did act after receiving their letter, a few chose not to. There were 2 main reasons for this: the first was because businesses already had arrangements in place to pay back the debt; and the second were businesses who chose not to engage with HMRC either because they could not pay or because they were putting the conversation off.

Those that already had arrangements were aware of their debt before they received the letter, and most had already called HMRC to arrange a payment plan to re-pay their debt.

“I was expecting it [the letter]…all of these conversations had already been had with our director about what was expected and what we could afford. [No action taken because] we were already in the process of calling HMRC to discuss payment plan options.” (Corporation Tax debt customer)

Those that had not acted, despite not having prior arrangements in place, tended not to be in a position to pay and therefore had been putting off the conversation with HMRC. A few mentioned that they felt the amount was small and therefore did not see the point of setting up payment plan as they would soon be able to pay off the full amount.

“We knew that we would be able to pay it very soon anyway so did not see it as a big issue. Didn’t think it was worth setting up a payment plan.” (Corporation Tax debt customer)

“There will be an end to this cashflow problem and it’s not that far on the horizon.” (VAT debt customer)

A few businesses were concerned with the state of their debt and had therefore been putting off dealing with it or building up the courage to contact HMRC.

“[Respondent has been] Burying my head in the sand up until this point. I’m scared of the debt. It makes me feel sick…it’s just a horrible feeling.” (Corporation Tax Debt customer)

7.1.3 Responses of businesses prompted to action by the call

A few businesses received calls from HMRC regarding their debt and these businesses tended to be further along their debt journey. This means that, generally the calls were not particularly effective at prompting action, because respondents were already aware of their debt situation and unable to do anything about it.

On a couple of occasions businesses did act, either by contacting a third-party intermediary to help with their debt problem or by referring HMRC to accountants, but on no occasions did the call prompt an immediate repayment of the debt.

Mostly, respondents who received calls were in no position to take any action and remained unable to pay.

“If I could pay it all I’d pay it right this second. We know what it is, we know why we have to make the payment and we know- barring interest- how much we have to pay, but if we can’t make it we can’t make it.” (VAT Debt customer)

7.2 Experience of setting up a payment plan

Most businesses found it easy to set up a payment plan and were made aware of the payment plan through HMRC communications. While, as covered above, many felt frustrated at the length of time required to get through to a customer support adviser, businesses were usually positive about the ease and speed of setting up a repayment plan once they had got through. Some, with previous experience of being in debt to HRMC, felt that it was easier to have the conversation about a reasonable payment plan than in the past.

7.2.1 Ease of setting up a payment plan

Many felt that there was a dialogue between them and the adviser that allowed them to reach reasonable terms quickly and mentioned that they felt the advisers understood how much the business could afford to pay and fit their payment plan around that.

“She was professional and helpful in setting up a payment plan they could afford to pay without risking the business.” (VAT Debt customer)

“Once I was through it was fine, pretty good. Easy and simple to arrange the plan, and the whole process was smooth.” (Corporation Tax Debt customer)

Furthermore, as well as being affordable financially, many businesses were happy with the timeframe they were given to pay the debt back.

“We have a revised payment plan in place. Really happy with that… it’s over 2 years. We’ll be able to keep this payment plan going.” (PAYE Debt customer)

A few suggested the terms of their payment plan themselves to which the advisers then agreed. These respondents had called HMRC with a figure in mind and were happy that they had then accepted their suggestions.

“HMRC asked how much we could afford to pay back each month. I said £2,000 and they accepted that. Don’t think HMRC could have made it easier, although I do wonder what they would have said if I wasn’t able to pay most of the CT debt upfront.” (Corporation Tax debt customer)

A small number mentioned that they were able to negotiate multiple plans or delay starting their repayment plan due to their financial situation. These respondents were particularly positive about their experience. One respondent told HMRC that they did not see things improving in the next 6 months and they anticipated that they would not be able to make the next payment. They were told to call back at the time of the next payment and they would revisit the plan. Another mentioned they were currently on their third plan.

“Each time I contacted them I negotiated a new payment plan, so where it was £10,000 or whatever, it might have then been £20,000 and then whatever, so it was just split of a lengthier time… Like a rolling payment plan.” (VAT Debt customer)

Conversely, a small number reported that they could not set up a payment plan because they already had one in place.

“Every time I called them, because there was a plan already set, they said they could not set up another plan… [it made me feel] terrible because I don’t like owing money but I just don’t have the finances to pay… if I stop buying the stock then I am not going to sell anything and I’m not even going to be able to pay what I owe.” (PAYE Debt customer)

Similarly, while many were happy with the terms of their payment plan, there were some who mentioned they still felt an element of threat and punishment in the terms set by HMRC. A small number were told that if they missed a payment then they would be required to pay the rest in full. Others, usually multiple or repeated debtors, were threatened by closure and other punishments.

“They said if you don’t pay it by Monday afternoon, we’re going to get the solicitors in and get you closed down. We owed money to HMRC for both VAT and PAYE at that time.” (VAT Debt customer)

“On that first call…I was told if I don’t accept this [payment plan]…the threat was put clearly on the table that if we don’t pay, other means to seek repayment will be undertaken…it was as stark as that.” (Corporation Tax Debt customer)

Other businesses felt that there could have been more flexibility and understanding built into the terms of the payment plan, in contrast to those covered earlier who were happy with the terms.

“There doesn’t seem to be much flexibility around the payment plan. Flexibility of the term of a repayment plan would make payment plans easier and more affordable so the business can survive the pandemic squeeze. There has to be a sensible calculation to ensure there is a balance. Extend repayment plans from pre-pandemic to post-pandemic solutions.” (Corporation Tax Debt customer)

A small number were unaware of the option to set up a payment plan, with 1 mentioning that they would have taken up the option if they had been aware.

“I think the idea of payment plans is more appealing than anything else…Correspondence to that effect would be quite good.” (PAYE Debt customer)

7.2.2 Whether respondents would be comfortable setting up a payment plan

There were mixed responses among respondents about whether they would have been comfortable with setting up a payment plan online. Some said they were not sure that they would have felt confident doing so, stating lack of digital skills as a reason.

“I don’t fully know what I’m doing on that front.” (VAT Debt customer)

Others said they would have felt comfortable setting it up online, but that being able to speak to someone was useful for several reasons such as: being able to ask questions about elements they were unsure about; confirming to HMRC that they could not pay the sum up front; and feeling confident that a payment plan was the path HMRC wanted to go down.

However, a small number did say that they would have preferred to do it online, because it avoids the anxiety felt when making a call to HMRC.

“I think online because if you have the potential to take away the nervousness of making the phone call, that’s good. Arranging these kinds of things online would actually encourage engagement with HMRC sooner and get things settled quicker from the people I know that actually take 2 or 3 weeks for someone to pick up the phone out of nervousness… So if there was that online ability you would probably get things resolved quicker.” (Corporation Tax Debt customer)

7.3 How experience impacted priority of paying debt to HMRC

In most cases, paying off the debt remained a priority and the experience had not changed the opinion of the businesses interviewed. Businesses still saw tax as something they should and must pay. For many it was just a facet of business.

“I don’t have any issues with HMRC or traffic wardens.” (Corporation Tax Debt customer)

“I don’t want this hanging over my head. I think repayment of debt is important to me regardless of how much it is.” (Corporation Tax Debt customer)

Some also highlighted that while they knew they had to pay their debt and taxes they were pragmatic about whether this would always be possible.

“We know we’ve got to pay it is just a question of when we can pay it because we have got other taxes to pay, that’s all it is really.” (PAYE Debt customer)

Motivations for paying off debt were often multi-faceted and involved elements of moral obligation as well as considerations of consequences if not paid, the impact this would have on their financial stability, and a pragmatism or acceptance towards the inevitability of the debt being repaid.

“I’ve always wanted to pay it. You know, I would much prefer to have the easy life and not have HMRC writing to me or doing anything like that at all…. I am a believer that you have to pay your tax; I don’t have a problem with that… I’m quite pragmatic about that.” (Corporation Tax Debt customer)

“My attitude is that if I’ve got a debt it’s got to be paid, regardless of HMRC, and I’m very comfortable with paying tax.” (Corporation Tax Debt customer)

Many businesses’ main concern was the threat of consequences and the penalties that they might face as a result of not paying.

“It’s an honest priority for us, because if we don’t pay it, bad things will happen to us and so we have to find a way to do that in the current situation which is already hostile and challenging.” (Corporation Tax Debt customer)

For many, paying tax debt was one of a number of important elements that had to be paid, and a small number prioritised the debt over paying suppliers.

“It is a priority for the business. We would prioritise this over paying suppliers due to the penalties from HMRC.” (PAYE Debt customer)

“It will be up there at the top…paying staff would be number one and then tax debt, then suppliers.” (Corporation Tax Debt customer)

However, there were some businesses for whom clearing the debt to HMRC was not a priority, mainly because respondents felt there were other things such as paying staff, creditors, suppliers or rent that were more vital to the survival of their business.

“Low priority – It doesn’t really impact us. Estimate we’ve paid about £7,000 in penalties, but that is nothing compared to the £1million plus the trust is estimated to be in deficit this year.” (PAYE debt customer)

For other businesses, paying off HMRC was seen as important, but not the most important priority and where limited funds were available, paying suppliers would come before paying HMRC.

“It is up there as a priority. taxes are an important part of your business and have to be paid and should be paid, but suppliers are also important we do not want them to go out of business as we need them in our chain. We really have to weigh everything up as they [HMRC] are really not going out of business! So we have a realistic approach of priorities, knowing we do have to pay up, whiles still keeping the business afloat.” (Corporation Tax Debt customer)

Most businesses said the economic situation did not change their priority to pay the debt, although a few businesses mentioned that the current economic situation was having an impact, because of the rising costs and general uncertainty.

“Would be the same. It may be harder to fulfil it, but it’s still the same priority in my head, but it may be harder to make payments.” (Corporation Tax Debt customer)

Question 8

8.  How customers feel HMRC could improve their experience

Accepted Answer

This chapter covers how customers felt HMRC could have improved their experience. Firstly, it focuses on the methods of communication, followed by ways of monitoring and reviewing payments and finally covering how first-time debtors felt they should be treated.

8.1 Methods of communication

Generally, there was a view that the methods of communication from HMRC were fine throughout the process. However, respondents were asked how they felt HMRC should communicate with their customers who are in debt, and this prompted a range of responses, highlighting that personal preferences are varied and the broader the communications can be from HMRC the more likely they are to reach all of their customers.

“Each customer is different, so they need to be alive to that, but I think it works fine now.” (PAYE Debt customer)

Many argued that letters were unreliable with some stating their current experience of receiving letters up to 2 months after the money should have been with HMRC. This had led to extra interest charges that could have been avoided if the customers had received more instant communication.

“Sometimes with letters by the time they’ve produced them, by the time they come, it could be several weeks, and in that time you’ve incurred interest on it [the debt].” (PAYE Debt customer)

“Everything is done by email these days…the letters are so inconsistent and sporadic…I think the postal system is appalling at the moment.” (VAT Debt customer)

Furthermore, a few respondents mentioned that letters are easier to lose, misplace or forget about. One respondent who did not receive a letter said that they would have liked to receive one; this could have been a result of the letter being lost in transit and highlighting the need for other communication streams.

“Would like to be proactively notified by letter, as we never received 1 about the VAT arrears.” (VAT Debt customer)

Most of the respondents who had concerns about the letters said that they would prefer emails that could be sent to remind them of upcoming or overdue payments. Some suggested that if they received an email on the day the payment was due or soon after they would be prompted in to actioning the payment.

Some businesses mentioned already receiving business alerts from HMRC in the form of email and that this was a useful way of receiving communication. Furthermore, emails make it easier to track correspondence.

“As it is letters that come in, I’ll file them somewhere but I’d much rather have an email trail.” (VAT Debt customer)

Some acknowledged that emails could lead to scams but suggested there were ways of mitigating against this, either by making the email a copy of the postal letter or the email showing businesses their account balance.

“Just an email. They don’t have to send a written letter, but if there is a written letter then they could send a pdf version.” (PAYE Debt customer)

A few respondents felt that HMRC should be making greater use of digital services and felt that if they were notified of all forms of HMRC payment then there would be a more instant reminder to customers.

“As a small business, I don’t log in every month though I try to when doing the payroll….It would be nice if there was a new message in your inbox telling you [about a payment].” (PAYE Debt customer)

Another commonly desired method of communication was calls from HMRC, mostly from those who did not receive 1 during their experience. These businesses felt that calls were more personal and would allow a real person to understand each business case in turn.

“I think from a business owner [perspective] personally, I’d always prefer people to communicate verbally rather than letters to be honest but that’s me, I’m a bit old school.” (VAT Debt customer)

It was also felt that phone calls could be made closer to the date of the overdue payment and may help to speed payments along.

“A phone call might speed it up a bit, but I know they’re very busy.” (Corporation Tax Debt customer)

Phone calls were also felt by many to be more personal and tactful and would allow respondents to present their situation to a person who is listening.

“You can at least speak to somebody who actually understands the account and can login and tell you what is going on.” (VAT Debt customer)

“A phone call would be better to see what the situation was…personal touch rather than just a threatening letter through the post…” (VAT Debt customer)

A few also mentioned that phone calls were harder to ignore than letters.

“Think a telephone call is always more effective than a letter… a letter you can ignore, put in the bin.” (PAYE Debt customer)

8.1.1 Concerns about scams

As touched upon earlier, there were some concerns among the customers interviewed about the possibility of scammers co-opting the communication methods that HMRC used. All modes of communications were mentioned by at least one respondent as being a concern because of scams.

Online communications were mentioned by a number as being particularly concerning, but respondents also mentioned calls, letters and texts as being a potential method of scamming.

“I’m quite fearful of online communications due to possibilities of scammers. Unfortunately for HMRC the scammers do use them a lot! If you give me your bank detail we’ll give you a tax refund…Yeah right!” (Corporation Tax Debt customer)

“Scams are prevalent across the board and I would always call back if I received a call from HMRC to ensure the validity. I always thought that because of the sensitivity of the subject that a lot of these ‘calls’ would go through the post. I think the post is the way, the good old-fashioned way is the best.” (VAT Debt customer)

8.2 Ways of monitoring and reviewing payments

A few, multiple debtors, felt that having 1 point of contact at HMRC for all tax and debt affairs would make their experience easier to manage. By having to contact 3different departments some businesses were unable to set up payment plans with one department because they already had one in place with another. It was mentioned that having to call someone from each department to discuss the debt was time-consuming and counter intuitive.

“Would certainly have been helpful if we had 1 local tax office where I could have phoned and spoken to the same person with regards to [Construction Industry Scheme], VAT, and Corporation Tax, and they were aware of our business and our situation.” (Corporation Tax Debt customer)

“More dedicated case workers so that one does not have to go through a process of repetition every time contact is made. It is very difficult speaking to 3 different departments and to different customer advisers every time I call them.” (PAYE Debt customer)

Some suggested that HMRC could have made it clearer about what was owed and where the discrepancy occurred. While others mentioned that there could be more detail on the letter about the debt.

“It would be nice to be a bit clearer in terms of what’s owed and when it has to be paid…” (VAT Debt customer)

Similarly, a few felt that they could have been allowed more time to appeal or to work out what had happened and how the amount was reached , as this sometimes resulted in additional interest accruing.

“We’ve still got penalties. I’ve just paid some, but I’ve only just realised you can dispute them within 30 days, and of course I haven’t done because I wasn’t aware. That needs to be better communicated.” (PAYE Debt customer)

“My only complaint really was that the surcharge that we had been given was just crazily high and totally unfair. And this is what companies like this have to deal with, charging 15% on the VAT payable, just for paying a day late, it’s just punitive.” (Corporation Tax Debt customer)

Despite this, some businesses did successfully appeal and were satisfied that HMRC had treated them fairly and understood their situation.

“I appealed it because they were going to put us into a surcharge. I appealed and the letter came back to say obviously the appeal had been accepted, so can’t complain from that perspective.” (VAT Debt customer)

Some respondents also mentioned the importance of their agent and accountant in debt related matters. Often communications would be passed straight to the accountant, and many respondents expected their accountants to communicate with them if there were any tax related issues.

“If you employ an accountant, it is their job to give the business the information needed to enable them to pay the right amount of tax on time.” (Corporation Tax Debt customer)

“I am busy running my business so I will tend to look for advice from my accountant.” (Corporation Tax Debt customer)

8.3 Differentiating between persistent late payers and genuine mistakes

While generally businesses did accept their error and the payments that they owed, some were frustrated at being punished for what they felt was a genuine mistake or an error, rather than deliberate tax avoidance.

“It’s almost like they’re saying it’s a bad debt, but it’s not a bad debt it’s an error on their part.” (VAT Debt customer)

“The only thing I don’t like about HMRC…this was a genuine mistake…the threat of having interest and everything else if you are in a situation where you couldn’t pay it… would upset some people…you never know what some people’s situation is like.” (PAYE Debt customer)

Some of these businesses felt that the approach was more severe than necessary and that a more understanding approach would have been more appropriate.

“Rather than the letter approach and the hard-handed approach, you know there is ability there to get into payment plans etc to try and get people out of trouble. You know that proactive and sympathetic approach.” (VAT Debt customer)

Some first-time debtors suggested they should be treated with a bit more understanding and support compared to those who are repeatedly late at paying.

“I think they could have an awareness that all businesses are different and as a start-up they don’t do much to support you.” (VAT Debt customer)

However, other first-time debtors were satisfied with the proportionality shown by HMRC given their circumstances.

“The advice that we got from our accountant that we got was that as it was our first time late, generally HMRC is very good with you…but if it continued you would incur a percentage interest cost. We were fully aware of that, so we wanted to get it all sorted for the final quarter.” (VAT Debt customer)

“[They said] ‘we won’t charge you surcharges this time as it’s the first time and you get a free pass.’” (VAT Debt customer)

Question 9

Appendix 1: Case Studies

Accepted Answer

Case study 1: Lisa

Lisa and her husband run a small building development company. They were relatively unaffected by the pandemic as they could continue to build houses. However, due to the rise in material costs, it is about 30% more expensive to build a house than it was previously, meaning they expect a lower profit margin. Lisa and her husband are currently working on their last project before they plan to retire.

A number of their properties sold within in the same tax year which meant they had a larger Corporation Tax bill. Their accountant only informed her the day before that a payment of £50,000 was due.

Due to a negative past experience of speaking to a HMRC adviser a few years ago, Lisa was reluctant to phone HMRC and say she couldn’t pay. Instead, she spoke to her son and they decided to take out a bank loan. Her son took out a loan of £20,000 and she took out one for £15,000.

Lisa then phoned HMRC and was relieved when she heard a friendly voice at the other end of the phone. She explained that they were able to pay £40,000 (£35,000 via a bank loan and £5,000 own funds) and asked to set up a payment plan to pay back the remaining £10,000 over five months.

Lisa said she has a more positive perception of HMRC now due to speaking to an understanding adviser and would feel more comfortable contacting them in future.

Case study 2: Otis

Otis runs an engineering company that manufactures small parts of various machines, mainly as a subcontractor. His company was impacted by the Covid-19 pandemic when many of the work coming from their lead contractors dried up and a some of his staff decided to take an early retirement. Otis used some self-employment support and also took out a bounce back loan to consolidate the debt.

Since the pandemic his business has struggled to recover, and the cost-of-living crisis has meant that the goods and services his business offers are not in demand, while overheads have risen to a crippling level.

The bounce back loan and missed VAT payments have put his company in a debt of around £30,000. He was aware of the debt he owed and despite receiving two to three letters from HMRC a month he no longer opens them, because he’s confident that they’ll get back in touch at some point. He feels the volume of letters he’s received has made him blasé about the money owed to HMRC.

He has tried to contact HMRC on a number of occasions to talk about his debt and set up payment plans but often was waiting for around 30 minutes, at which point he would hang up. When he did get through to them, he had nothing but praise for the operatives, and believes that 10 years ago (the last time his company was in debt) they would have probably tried to shut his business down with the amount he was able to pay.

He has set up a payment plan which he thinks is affordable but does admit that paying off the debt is only about 20% of a priority and sees it just as an additional bill.

Case study 3: Mandy

Mandy is the Head of Finance at a company that manufactures lanyards, badges and some jewellery. Her business’s clients are the charity and private sector.

The company was negatively affected by the Covid-19 pandemic and had to completely close for 6 weeks to undergo a deep cleaning process. When the business returned the number of employees was reduced and orders that they were sending were not being accepted because of fear of contamination.

The company furloughed staff and received bounce back loans, but Mandy says the Covid-19 pandemic did not have an impact on their debt. The business was aware that they had outstanding PAYE debt when they received their first letter and had already been prioritising other areas to ensure the running of the business.

The business received a number of letters regarding the debt, which she thought were more like reminders than threats. Mandy felt there could have been more information on the different ways the debt could be repaid; she did not know that she was able to call HMRC or that she could approach HMRC to organise a payment plan.

Mandy had planned to pay the debt in full, but as a result of the interview, realised that setting up a payment plan would be more favourable. She felt if she had been aware of the possibility of setting up a payment plan she would have acted more promptly. Mandy hadn’t tried to call HMRC regarding this specific debt and said she had been put off from trying to contact them based on previous experiences where she has found it difficult to get through to anyone.

Case study 4: Brian

Brian is a Director at a flooring company that mainly works as a sub-contractor in new build constructions.

The Covid-19 pandemic had a relatively minor effect on the company, which saw a little less profit in 2020. They did shut down and cease on-site training during the lockdown, but mitigated this by putting all except 2 of their staff on furlough.

Brian says that he first became aware of the debt after receiving a letter from HMRC but did not necessarily agree the debt was real. According to his records everything had been paid on time, but after some investigation and speaking to their bank they realised that 1 payment of PAYE had not gone through, and their bank had not alerted them. After receiving the letter, they rang HMRC who were very helpful, but explained that the payment was late and that interest had accrued. Brian decided that it was best to pay the interest immediately to avoid any further costs and get back to a clean record as is the company’s way.

Despite his frustration, the experience did not negatively impact Brian’s good relationship with HMRC and he felt that they were honest and clear throughout the process. The only issue was the length of time it took for him to receive the letter, and if this had arrived sooner the company would have been able to act earlier.

Case study 5: T.J.

T.J. owns a sign manufacturing business which includes some retail and picture framing. The Covid-19 pandemic had a large impact on his business as they had to close for three months, before making the decision to diversify into manufacturing COVID screens. The company received a grant of £10,000 from the local authority and a bounce back loan of £45,000 which they used to help buy new equipment.

T.J. first became aware of his company’s debt through a letter from HMRC. He became aware that his accountant had been going through some personal issues and was not keeping on top of paying the tax. He felt the letter was straightforward but would have liked it if HMRC provided a breakdown of the details.

He immediately called HMRC after receiving the letter, but said it was very difficult to get through to someone. When he did manage to get through he felt the advisers were polite and understanding. After discussion with an adviser he set up a repayment plan of £2,000 a month, which was the figure suggested by T.J.

He didn’t have any complaints or issues with the way his business was treated but thinks that in general HMRC could be more supportive towards small businesses, by not adding interest immediately to the debt. Generally, T.J. believes that businesses should pay less in tax, but this does not mean that paying off the debt was not a priority. T.J. said he prioritised paying this debt over suppliers because of the penalties he could receive from HMRC.

Not all businesses interviewed were first-time debtors. ↩