Consultation on the direct recovery of tax debts

On 6 May 2014, HMRC launched a Consultation on the direct recovery of tax and tax credit debts.  Initially announced as part of the Budget 2014, the central idea is that HMRC will, from April 2015, in some circumstances be able to recover tax directly from the bank accounts of those individuals owing tax of £1,000 or more.  These proposed measures have proved to be extremely controversial, with many commentators questioning whether HMRC have the administrative capabilities to operate such a new power effectively and fairly.  There is also concern that, with the imminent introduction of ‘pay now’ notices to be issued to those using certain tax avoidance schemes, HMRC will be able to determine a tax debt based, for example, only on the fact that an individual has included a DOTAS number on their tax return.  Essentially, these new collection powers may be used in the absence of a judicial determination of the fact that tax is actually due, and if these new powers come into effect, there will also be no judicial supervision of HMRC’s rights to access the bank account.

That said, the Consultation Document outlines a number of safeguards.  These can be categorized as those which will apply before HMRC may ‘recover’ funds and those which only apply after HMRC have made application to take the money.

The first category of safeguards include:

  • A taxpayer must have been contacted at least four times about his tax debt before funds may be taken from his account.
  • The measures will only apply to those owing in excess of £1,000 of tax which is due and unpaid.
  • A minimum of £5,000 must remain in the bank or building society accounts of the debtor once the fund have been extracted.

Assuming that these safeguards are complied with, HMRC will, in principle, have the power to simply take the money from the taxpayer’s account (presumably by some form of official transfer request the bank).

The safeguards applying after HMRC have applied to recover the money include:

  • The taxpayer is to be allowed a period of 14 days from the date of application in which to make representations to the effect that the money is not due or that making payment would cause undue hardship.
  • If those representations are not accepted HMRC will be able to take the money. However, should the taxpayer continue to object, the additional options would be:
  • judicial review;
  • an appeal to an independent adjudicator; or
  • an appeal to the Parliamentary Ombudsman (albeit that this would require the support of the taxpayer’s MP).

HMRC estimate that these proposed new powers are likely to affect 17,000 taxpayers in an average year, and they hope to collect additional tax in the region of £95m per year at a relatively modest administration cost.

The measures are certainly dramatic; however, they are not unprecedented in other jurisdictions.  The views raised by those responding to the Consultation, which closes on 29 July 2014, may lead to the introduction of additional safeguards and other alterations to the fine detail.  Nevertheless, these new powers will represent a significant new tool in HMRC’s ongoing crusade to collect further tax and, particularly, the tax which they believe is due!

For further information regarding payment obligations and working with HMRC to agree practical solutions when tax is due please call TaxDesk on 0845 4900509 and ask for John Hood or Isobel Clift.