Written by Roger Harding
On 6 May 2014 HMRC opened consultation regarding their request for powers to access the bank accounts of taxpayers with tax debts exceeding £1,000. The closing date for comment is 29 July 2014. Responses to the consultation will be published in autumn 2014 and draft legislation released for further consultation in the 2014 autumn statement. New legislation is expected to be introduced as part of the 2015 Finance Bill.
HMRC analysis suggests some taxpayers who have tax debt have sufficient funds to pay but simply won’t. Their stated aim is therefore to reduce this debt in the most cost effective manner and thereby modernize the ability to recover debt. “Cost effective” is a term used on more than one occasion in the document.
The consultation is seeking views from affected parties on the operational aspects of Direct Recovery of Debts (DRD) and the proposed safeguards to be included.
HMRC state that approximately 90% of self-assessment taxpayers file their returns and pay their taxes on time. The other 10% either file late or not at all, which creates a debt. They further estimate that approximately 17,000 cases per year will be affected by the proposed new powers and the average debt in these cases is £5,800. In their estimation, half of those debtors will have around £20,000 in their accounts.
HMRC are already able to seize assets of debtors to satisfy outstanding tax liabilities. They also claim to have made significant progress in recovering debt through this and other measures being used more effectively. However they consider current remedies slow and expensive. In their view the new DRD remedy will be quicker, cheaper and less invasive!
Encouragement to pay in instalments continues and the latest department’s figures (Feb. 2014) suggest some £2.4 Billion of debt is currently being collected by this means. “Self-serve time to pay” will be launched as announced in the 2014 Budget. This will allow “eligible customers” to arrange instalment payments online.
Their stated objective for wanting this new power is to reduce tax debt in the most cost effective manner. They back this up by stating similar powers are already being used in other countries and the UK Dept. for Work & Pensions Child Maintenance Group. There is a suggestion in the consultation that non -compliant businesses have an advantage in the marketplace allowing them to undercut their competition.
Tax debts and tax credit overpayments of £1,000 or more will be considered for DRD and HMRC state the taxpayer will be contacted up to nine times before the process begins. Further contact will be attempted by specialist collectors and previously compliant taxpayers will be contacted more times than the historically non-compliant.
When HMRC decide the debt is suitable for the DRD process, they will match it against the information they hold and contact the relevant bank or similar institution to place a hold on the account(s). When a hold is in place, HMRC will write to the taxpayer giving them 14 days to either pay in full, pay in instalments, or provide evidence of hardship. Once DRD is enforced, the taxpayer must satisfy HMRC such action will cause undue hardship. If the taxpayer objects and HMRC does not uphold the objection, there is recourse to judicial review.
Additionally HMRC are seeking powers to request information relating to the previous 12 months activity for each account with the intention that the whole tax debt will be taken in one lump sum subject to leaving a minimum of £5,000 in total across all accounts (including ISA’s). Where it is not possible to take the whole amount as a lump sum, they will review the history of the account and take instalments if possible. They propose to include joint accounts within DRD to stop easy avoidance of the new legislation.
HMRC acknowledges deposit holders will need to make adjustments to their systems to be able to comply with the legislation. The consultation also seeks views on whether any sanctions should be imposed on deposit takers.
Without going into fine detail, HMRC state robust safeguards will ensure they do not target the wrong person’s account or cause undue hardship. Mistakes will be rectified quickly and debtors recompensed for losses. A dedicated helpline for debtors and deposit takers will be set up and a specialist collectors put in place.
Whilst it goes without saying the new powers will be more “cost effective” any proposed law that gives HMRC (or any Government Department) the ability to bypass the independence and scrutiny of the judicial system, should not be allowed to pass. It is hardly less invasive to place a hold on someone’s bank account, give them only 14 days in which to produce evidence of hardship, before simply removing funds. Furthermore, 12 month’s private financial data will be provided to HMRC so that they may “see any patterns in the debtor’s account history”. Such information could easily be misused and HMRC have hardly got a proven track record with security of information.
It is hardly likely that the effect on banks and deposit takers will be minimal. The proposed powers will have serious consequences for the relationship between them and their clients.
HMRC should not be given new powers simply because they ask for them. Recourse to the Courts in pursuit of debt is a remedy open to us all, so why should a Government Department bypass this simply because it’s easier and cheaper for them?
If such powers do become law, one wonders how long before DRD will become the first rather than the last resort. Parliament will have the ultimate say on whether to grant HMRC this wish and with that in mind, we should take note of comments made by Nigel Mills MP, a former tax adviser, in a recent House of Commons debate on tax transparency on 8 July this year; “90% of MP’s have no idea what they’re debating or the measures they are passing into law”.
You have been warned!
If you affected by the proposals the consultation remains open until 29 July 2014. The consultation document can be accessed by going to www.gov.uk/government/consultation/direct-recovery-of-debts and includes details of how to respond.
Contact the Author
After starting my tax career with HMRC, I qualified with ATT (Association of Tax Technicians), working in the accountancy practice of Deloitte. Having gained experience in personal and business tax, property taxation, corporate tax structuring and compliance, I brought my expertise to Gordon Dadds in 2013. I am a fan of all sports, but avidly follow football, rugby and golf.