Why HMRC Is Increasing Its Use of Private-Sector Debt Collection Agencies

Following a trial completed in March 2026, HMRC expects to recover £31 million of aged debt through increased use of external agencies during 2026–27. The initiative forms part of a wider programme to reduce the volume of outstanding tax debt, modernise HMRC’s debt-management systems and make better use of its internal resources.

This is not the wholesale outsourcing of tax collection. HMRC will continue to manage its overall debt portfolio, retain responsibility for enforcement and deal directly with more complex cases. It is also investing significantly in its own capacity, retaining approximately 1,200 debt-management employees and recruiting a further 1,200.

Instead, HMRC is using external agencies selectively - primarily to undertake desk-based recovery activity on older accounts that may be uneconomical to pursue through its existing internal processes.

For organisations managing their own overdue accounts, thedecision raises some interesting questions about debt segmentation, internalresources and when specialist external support can add value.

Why is HMRC expanding its use of external agencies?

The scale of HMRC’s debt portfolio is considerable.

At the end of June 2026, outstanding tax debt stood at £42.8 billion, compared with £42.6 billion at the same point in 2025. HMRC also reported that it resolved almost £102 billion of debt during 2025 -26, an increase of 5.3% on the previous year.

These figures demonstrate that even an organisation with significant internal expertise and statutory recovery powers must continually assess how its resources are deployed.

HMRC’s external agencies conduct desk-based recovery activity, including contacting customers by telephone, letter and SMS, and agreeing Time to Pay arrangements within parameters set by HMRC.

Using external agencies for selected accounts enables HMRC’s own teams to concentrate on cases requiring greater investigation, specialist attention or formal enforcement action.

It is a model based on segmentation rather than substitution.

Is tax debt regulated?

Tax liabilities are not generally regulated debts in the same way as borrowing arising from a regulated consumer-credit agreement. Tax is a statutory liability owed to the Crown, rather than credit provided to an individual under the Consumer Credit Act.

However, HMRC requires all the private debt collection agencies it appoints to be authorised and regulated by the Financial Conduct Authority. Those agencies must also follow HMRC’s own processes and guidance,and HMRC conducts regular reviews of their performance.

This is an important distinction.

The nature of the underlying tax debt does not itself create the requirement for FCA regulation. Instead, HMRC has chosen to make FCA authorisation part of its procurement and assurance framework.

That decision reflects the nature and scale of the work being undertaken. HMRC’s portfolio includes debts owed by individuals and businesses, some of whom may be experiencing financial difficulty or vulnerable circumstances. Requiring FCA-authorised agencies provides an additional layer of governance around matters such as customer treatment, affordability,communications and complaints.

It illustrates a broader principle for any creditor: the legal status of a debt is only one consideration when selecting a recovery partner. Conduct, governance, data security, vulnerability processes, quality controls and reputational protection are equally important.

Older does not always mean unrecoverable

One of the most interesting aspects of HMRC’s announcement is its focus on aged debt that may be uneconomical to pursue through existing enforcement methods.

As debts age, the likelihood of recovery will generally decline. People and businesses relocate, contact details become outdated, records become more difficult to access and the customer’s financial circumstances may change.

However, that does not mean every aged account is unrecoverable.

A portfolio that is no longer cost-effective for an internal team to manage may still contain viable accounts. The issue may be one of available resource, data quality or collection capacity rather than an absence of ability or intention to pay.

Reviewing an aged portfolio can identify different categories of account, including:

• Customers who can be contacted but have not responded to previous reminders
• Accounts where telephone numbers, email addresses or postal information require updating
• Customers experiencing temporary financial difficulty who may be able to agree an affordable repayment arrangement
• Genuine disputes that need to be identified and resolved
• Accounts requiring more specialist investigation or escalation
• Debts where further recovery activity would not be proportionate

This segmentation helps organisations avoid two common extremes: writing off an entire portfolio too early or continuing to apply the same collection process indefinitely.

External recovery should complement internal expertise

HMRC’s approach demonstrates that outsourcing does not have to mean replacing an internal credit-control or debt-management function.

Internal teams hold valuable knowledge about customers, contracts, services and previous communications. They are often best placed to manage recent arrears, resolve invoice queries and protect important commercial relationships.

However, they may not have the time, technology or specialist resources to pursue every overdue account - particularly where debt volumes are high or a backlog has developed.

A specialist recovery provider can add capacity at a definedstage of the process, allowing internal employees to focus on work where theirknowledge and intervention will have the greatest impact.

The most effective model is therefore often a joined-up one,with clear criteria determining:

• When an account remains with the internal team
• When additional data or tracing activity is required
• When an account should be referred externally
• How disputes and vulnerable customers will be handled
• When further action is no longer reasonable or commercially viable

A successful referral process should feel like a continuation of the creditor’s approach, rather than an abrupt change in tone or treatment.

Data has an increasingly important role

HMRC’s wider tax-debt strategy also places considerableemphasis on data, segmentation and digital systems.

The organisation has begun using credit-reference agency data to gain greater insight into customer behaviour and financial circumstances. It is also modernising its case-management technology to support more automated processes, data-driven decisions and a more complete view of each customer’s position.

For commercial creditors, the lesson is not simply to increase the volume of automated communication. More activity does not necessarily produce better outcomes if it is based on inaccurate information or applied without considering the circumstances of the account.

Better data can help organisations decide which communication channel is most appropriate, whether an account remains at the correct address, whether additional support may be required and which cases should be prioritised for human intervention.

Technology is most effective when it supports informed and proportionate decisions - not when it removes judgement from the recovery process.

Fairness and recovery are not competing objectives

HMRC’s strategy distinguishes between customers who needsupport and those who have the means to pay but choose not to engage.

That distinction should be fundamental to any responsible recovery operation.

Effective debt recovery is not simply about increasing pressure. It involves establishing contact, understanding the reason for non-payment and identifying the most appropriate route to resolution.

Some customers may be able to pay immediately. Others may need an affordable repayment arrangement, further information or time to resolve a legitimate dispute. There will also be cases where firmer escalation is justified because the customer has the means to pay but repeatedly avoids engagement.

A proportionate approach is not only important for customer outcomes and organisational reputation; it can also improve recoveries.Communication that is clear, respectful and appropriate is more likely to encourage meaningful engagement.

What can commercial creditors learn from HMRC’s approach?

HMRC operates within a different statutory, regulatory andpublic-sector framework from a commercial creditor. Nevertheless, several aspects of its strategy have wider relevance:

• Aged debt should be reviewed and segmented rather than treated as a single portfolio
• Internal resources should be focused where their expertise delivers the greatest  value
• Selected accounts may be managed more efficiently with specialist external support
• Accurate data is essential to effective and proportionate recovery
• Complex cases and vulnerable customers require appropriate human oversight
• External providers should be selected on governance, conduct and quality - not recovery performance alone
• Clear referral and escalation points can prevent recoverable debts from becoming unnecessarily difficult to collect

Perhaps the most significant lesson is that even an organisation with HMRC’s scale, resources and legal powers recognises that different categories of debt require different recovery strategies.

The question for creditors is not simply whether to manage debt internally or outsource it. It is how to build a joined-up process that uses the right people, information and approach at each stage of the account’s life cycle.

A more strategic approach to aged debt

HMRC’s expanded use of private-sector agencies is ultimately a resource and portfolio-management decision. It is seeking to address older accounts more efficiently while directing internal expertise towards complex cases and those requiring enforcement or additional support.

Commercial organisations face the same fundamentalchallenge, albeit within a very different legal framework.

A structured approach to segmentation, data quality, internal resource and external referral can help prevent debts from being overlooked, improve operational efficiency and create more opportunities for fair and sustainable resolution.

Controlaccount has more than 45 years’ experience helping organisations manage overdue commercial and non-regulated consumer accounts through ethical, professional pre-legal recovery. We work alongside internal credit-control and customer-service teams, providing additional capacity and specialist support while protecting customer relationships and organisational reputation.

To discuss how your organisation approaches current or aged debt, please contact our team.

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