Following the announcement in this year’s Budget that HMRC would consider recovering tax arrears by helping themselves to individuals’ bank accounts, the Revenue has recently published its consultation document, ‘Direct Recovery of Debts’ (DRD).
The consultation will run until 29th July 2014, after which draft legislation will be announced in the Autumn Statement with a view to cementing legislation in the 2015 Finance Bill.
The consultation discusses a new power which will allow HMRC to dip into the bank accounts of those people who owe them money but either ignore or fail to respond to repeated requests by the Revenue. Seven years ago HMRC did consult on something similar, the ‘Direct attachment of taxpayers’ assets’ but this latest idea builds on those previous proposals.
DRD is seen as a quicker, cheaper and less invasive (how can raiding a bank account be less invasive?!) way of collecting tax and NIC debts, and overpaid tax credits not paid back to HMRC. It is estimated that DRD would be used in around 17,000 cases each year where those in debt to the Revenue owe, on average, £5,800 and have more than £20,000 in their bank and building society accounts and ISA’s.
A similar policy is already used by the Department for Works and Pension’ Child Maintenance Group and other international jurisdictions such as U.S.A, Australia and Sweden.
HMRC assures us that they have no interest in putting viable businesses into insolvency to recover the debt it is owed as the returns from doing so are often far lower than supporting a viable business through a ‘Time to Pay’ arrangement.
Of those who owe more than £1,000, HMRC estimate that:
It is proposed that these new powers will be used in cases where a person has a tax debt of £1,000 or more and has been contacted by HMRC around 9 times but failed to act. Once HMRC has established that the taxpayer has the necessary funds in their accounts they will contact the person’s bankers to request information about all accounts over the last 12 months. This information would have to supplied to the Revenue within 5 working days.
Joint accounts, even where one party does not owe HMRC anything, would be fair game with HMRC proposing a pro-rata proportion of the credit balance to be subject to DRD.
A right of appeal will exist but only on the grounds that the tax is due and that the use of DRD would cause undue hardship.
Realising that the consequences of mistakes and errors could have serious consequences to taxpayers, HMRC propose to put into place a number of safeguards to ensure that:
The Commons Treasury Committee has labelled these measures as “draconian” in its report into the Budget, also saying, “This policy is highly dependent on HMRC’s ability accurately to determine which taxpayers owe money and what amounts they owe, an ability not always demonstrated in the past. Incorrectly collecting money will result in serious detriment to taxpayers.”
This surely is a step too far, as who would wish their investments to be at the mercy of HMRC?