A proposal by HM Revenue and Customs to outsource some of its debt collection service to private-sector suppliers could force struggling businesses to close, business groups and unions have warned.

HMRC is set to run pilot schemes including outsourcing debt collection to low-value debt specialists and selling the debt deemed irrecoverable.

Dave Hartnett, permanent secretary of tax at HMRC, confirmed the pilots were being conducted to assess how debt could be managed more effectively.

The pilot schemes come amid growing concerns over future HMRC tax debt operations. It has said it plans to close two-thirds of its UK tax offices.

HMRC declined to reveal the amount of money involved in the pilot schemes, which are expected to commence later this year with ministerial consent, or the identities of the private suppliers. It added any tax debt it decides to outsource would be a ‘relatively small amount of money.’ A spokesman said its total tax debt for 2007/08 was about £17bn.

Stephen Alambritis, chief spokesman for the Federation of Small Businesses, said any proposal by HMRC to outsource debt collection should be abandoned as it could force premature business closures.

He said HMRC had been sympathetic to the plight of small businesses during the economic downturn through the adoption of the Business Payment Support Service, but said any proposal to outsource debt collection would ‘go against that ethos’. He added: ‘There is a strong possibility that businesses will call it a day when faced with debt collection because they’ll smash down doors and we’d urge the taxman not to go down this route.’

A spokesman for the Public and Commercial Services union, which represents HMRC staff, said: ‘The department is looking to outsource that work in a bid to cut costs and you have to question whether the expertise and knowledge resides in the private sector.’

Andy Wells, head of tax dispute resolution at Mercury Tax Group, also raised concerns about outsourcing tax debt. ‘It can only get worse if they put external people who are not part of HMRC in the frame.’

Hartnett rejected suggestions that outsourcing HMRC’s debt collection function would result in a more aggressive approach to tax collection.

‘People will have to work to our standards. It’s not a question of us dumping debt in the private sector. We’ll expect people to behave well and treat debt respectfully,’ he said.