HMRC consult on Direct Recovery of Debts
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:
- 73% have over £10,000 in their bank and building society accounts and ISAs;
- 48% have in excess of £20,000; and
- 21% have more than £50,000.
Vulnerable taxpayers
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.
Safeguards
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:
- it does not target the wrong persons account;
- a minimum of £5,000 will be left in the individuals bank accounts and that it does not cause undue hardship by removing funds from accounts that are required to meet immediate and essential day-to-day business and living expenses; and
- any mistakes are rectified quickly and compensation is paid as appropriate.
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?
Put your money in Bitcoin and they can’t get it!
To be perfectly honest, I don’t see the problem with this arrangement at all. If you paid the tax you owe, you wouldn’t get raided, and I have no time for tax evaders. There really is no excuse to not pay, if you have the means to do so, and have been contacted 9 times about it. Even if they are mistakenly collecting tax, you’ve been given 9 chances to respond to tell them about their mistake before they do it. Can’t say fairer than that in my book.
Nigel,
Obviously you have never been at the receiving end of HMRC errors.
Well, many honest people that “paid the tax they owed” have. I can assure you it can and will ruin your day, and possibly your life.
Giving power like these to anonymous civil servants with a track record like theirs is like giving a 5-year old a loaded gun to play with.
Nigel appears to have made a couple of bold (and incorrect) assumptions:
1. HMRC is a competent and professional organisation
2. HMRC employs competent, dilligent people who treat every case with the attention to detail it deserves.
When some muppet has set the HMRC hounds on to you incorrectly its never as easy as just cslling them. Have you ever tried to resolve a utility bill overpayment or broadband issue? Do you think the people on the HMRC phones are any smarter than the person on the utility company helpdesk ?
All these ‘safeguards’ are good on papaer. The implementation is another thing completely. I have no faith in any of them because its half-wits who will be implementing them.
DotasScandal dot Org : No doubt you were one of those greedy idiots who used the Montpelier DTA scheme.
If so, you deserve EVERYTHING you get. And more.
Pay up and shut up.
Not a good idea. To many examples come to mind of where people who are exceptions to the norm cause problems for HMRC’s admin systems and could potentially have their lives ruined by this. I had an issue recently where due to divorce and relocating a few times in a year as I didn’t like the flat I was staying in I was not getting correspondence despite having written to them with my new address and phone. Imagine if they were trying to tell me that my SA was underpaid if for example I’d got the reference number wrong when doing the bank transfer. They could have hit me for over 10k which I’d just put in my account to pay my new mortgage deposit. I think this should need to go through a court and HMRC should be no different to any other company trying to chase a debt. They can already file for bankruptcy against a person. Good intention to simplify debt recovery but they are not above the law.
Make yer bed out of gold and sleep on it, safe as houses – shiny precious