Sorting out debts with HMRC - how and why some businesses struggle

HMRC has published the results of research it commissioned to understand the ‘customer journey’ of small businesses that cannot meet their tax liabilities. 

The research was conducted with small, micro and nano businesses that had been in debt to HMRC, the aim being to use the findings to help improve HMRC’s debt processes. The report is dated February 2018 but was published on 29 November. It examines: 

  • when and how businesses became aware they wouldn’t be able to meet their liabilities;
  • their needs and actions at that time; and
  • their experiences of interactions with HMRC. 

This was qualitive research, conducted by Ipsos MORI in late 2017. It took the form of a series of interviews with a small sample of 15 businesses, designed to cover a range of business sizes and sectors, both corporate and unincorporated, and with and without agents. 

The report notes that all participants believed that paying their tax was important and started from the point of wanting to do so. From then on, the journey of managing and resolving their debt was influenced by the complexity of the debt and the participant’s attitude towards handling it, ie whether they tackled it or put their heads in the sand. However, regardless of the complexity of their debt and their attitude, participants felt that HMRC assumed they were deliberately trying to avoid their taxes, rather than being unable to meet them. 

It is clear that their initial approach to HMRC is a crucial factor for taxpayers, particularly for those feeling fearful and stressed about the debt and the business or personal circumstances that may have contributed to it. The participants had not previously been in debt to HMRC and were not sure about what they needed to do; they wanted clear guidance on this from HMRC. 

Participants preferred to start by phoning HMRC but were frustrated at the time it took to get through to the right person and at having to repeat their story to different HMRC staff at each contact. 

When businesses took action to sort out their debt, they wanted to be able to deal with the issue quickly and efficiently. Throughout their journey, they wanted to feel that HMRC had taken their individual circumstances into account. This included their business and whether it would be put at risk by any of the actions suggested by HMRC, plus any personal issues such as ill-health. 

Businesses with simple debts (eg, only self assessment tax) found it relatively easy to agree a payment plan, but for those with complex debts involving multiple taxes it was much harder, and some felt required to agree to a plan they could not meet. If the payments under the plan were set at a level the business could manage, it was able to pay off the debt; if not, it defaulted or had to renegotiate. Debts across multiple tax streams also led to confusion and frustration because different parts of HMRC took different approaches. 

The report does not make recommendations – it just sets out the research findings – but it does indicate that if HMRC can provide a clear contact route for taxpayers in debt, and a joined-up response which is tailored to the business in question, debt resolution could be much improved for the benefit of all parties.