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HMRC proposed new debt collection powers

On Budget day in March this year the Chancellor announced controversial plans to give HMRC new powers to recover debts directly from taxpayers’ bank accounts.

HMRC, the government body that has previously lost discs containing millions of tax payers’ information, regularly manages to mislay post and has issued thousands of pensioners with incorrect PAYE coding notices, is now expected to be trusted to deal with these powers correctly!

How can we be sure that HMRC will access the correct tax payer’s account?  How can we be sure that HMRC will only recover debts that are validly due?

HMRC have now issued a consultation document entitled ‘Direct Recovery of Debts’ (DRD) which does provide more information and aims to give some comfort that correct safeguards will be put in place to ensure that errors do not occur.  Features of the DRD include:

  • DRD will be used where a person has “established debts” of at least £1,000 in total. This could be made up of a number of smaller debts.
  • It will only be used where HMRC has already made multiple attempts to contact the debtor and arrange payment. For example, HMRC says a debtor in self-assessment will have been contacted by letter, phone call, etc at least four times and typically nine times.
  • It will apply to tax and national insurance liabilities and tax credit overpayments. This includes VAT and PAYE.
  • Debtors may be individuals, business or partnerships. We assume this could include companies and trusts but the consultation does not say.
  • DRD will apply to bank and building society accounts including ISAs.

The steps to be taken as part of the DRD process, which are to include these safeguards, are as follows:

  • HMRC will match the debt against bank, building society and ISA account information it already holds.
  • If there is a clear match with the debtor in question, HMRC will obtain further information from the relevant financial institutions about all the debtor’s accounts including current balances and recent transactions.
  • The deposit taker will be expected to supply this information within five working days – which seems to us a very short time.
  • HMRC will not use DRD if the total in the accounts is less than £5,000.
  • If the total is more than £5,000, HMRC will leave a minimum balance of £5,000 across all accounts. It will judge from the account records if it should leave more to meet necessary personal or business expenses.
  • In the case of joint accounts, HMRC plans to take a pro rata proportion, eg 50% where the debtor has a joint account with one other person.
  • The next step is for HMRC to tell the deposit holder to put a hold on the funds that HMRC plans to recover.
  • The debtor will be notified and given 14 calendar days to pay in full or make a payment arrangement, or to object and provide evidence that the debt is not due, the funds are not theirs, or that DRD will cause hardship.
  • If the debtor does not do this – or if they object but the objection is not upheld – the bank will be told to transfer the funds to HMRC.

The Institute of Chartered Accountants in England and Wales tax faculty does not believe that the current proposed safeguards will be sufficient to stop errors occurring and in my twenty years’ experience of dealing with HMRC I can understand why.

It should be reassuring to read that HMRC will set up a helpline to assist taxpayers should they have any queries regarding the process, and also that HMRC will compensate anyone who suffers a loss due to their mistakes.

It would be reassuring were it not already the case that taxpayers spend hours trying to get through to speak to someone on existing helplines only to find that the person is not very helpful at all.  It would be reassuring were it not already the case that if HMRC currently makes a mistake when dealing with a taxpayers affairs it can take as long to go through the complaints process and have them accept that they should give some financial compensation for our professional fees in sorting the mistake out as it does sorting it out in the first place.

HMRC plans to close the consultation period at the end of July and issue draft legislation in the autumn presumably to reach statute in 2015.  Let’s hope something changes between now and then.