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Tony Wickenden: Getting to grips with HMRC’s planned new tax collection powers

Plans to give HMRC powers to deduct tax owed directly from people’s bank accounts have attracted a lot of attention but despite the objections are likely to come into force.


You cannot have missed the recent furore about the proposed HMRC powers to take outstanding tax directly from taxpayers’ accounts. Neither can your clients – which is why you need to be aware of the proposals.

It all stems from the consultation on the Direct Recovery of Debts, whose foreword states: “The Direct Recovery of Debts, announced at Budget 2014, will modernise and strengthen HMRC’s ability to recover tax and tax credit debts from those who are refusing to pay what they owe. It will help to level the playing field between those who pay what they owe, when they owe it, and those who do not. 

“And it will help ensure that compliant businesses do not face unfair competition from others who try to gain an undeserved financial advantage by dodging or delaying their tax payments.

“Tax authorities in many advanced economies already use similar powers routinely and responsibly. In these countries, it provides a crucial lever for ensuring the Government is paid what it is owed. Introducing this policy in the UK will bring us in line with many of our peers and form an important part of HMRC’s toolkit.

“The Government recognises that there are concerns about the impact of this change on vulnerable members of society. We must ensure that there are strong safeguards in place so that this is only targeted at the truly non-compliant.

“That is why we are proposing to only use this power against a small core of taxpayers who owe significant debts of over £1,000 and have sufficient funds in their accounts to pay. Furthermore, we are proposing to leave a minimum of £5,000 after the debt has been recovered, ensuring that this does not create unnecessary financial trouble for those affected.”

In its defence, the Government points out that before getting to the stage where DRD is applied, a debtor in self-assessment with a good history of compliance will typically have been contacted by HMRC around nine times.

Giving a little more detail on what the consultation covers and which “accounts” are “in scope”, the introductory section of the document says: “This consultation seeks views on the implementation of the safeguards and other operational aspects of Direct Recovery of Debts. This is a new means for HMRC to recover debts in the most cost-effective manner and ensure monies owed to the Government are received and can be used to fund public services. It is an administrative measure which will allow HMRC to recover tax and tax credit debts directly from debtors’ bank and building society accounts, including Isas, without the need to apply to a court.”

At least we do not have to consider the tax implications of taking money from an Isa to meet a liability of the investor as we would if the money was being taken from a bond or collective. Small mercies.

Substantial headlines have been written about the proposals in relation to joint accounts. The consultation says: “HMRC believes it is important to strike a balance between recovering money from debtors while protecting the rights of other account holders. Where a debtor holds a joint account, HMRC proposes that a pro-rata proportion of the credit balance will be subject to DRD. For example, 50 per cent of the credit balance could be used to pay the debt.

“HMRC also proposes that joint account holders who do not owe money to HMRC should have the right to object to the recovery of debts from their joint account on the grounds of hardship or misidentification. Where a hold is placed on a joint account, all the account holders will be notified that this action has been taken and will have the opportunity to object to the DRD notice to the same timeframes as described above.

“If HMRC did not apply DRD action to joint accounts, this would provide an obvious opportunity for debtors to circumvent paying what they owe. This would require HMRC to take harder-edged enforcement action to recover monies owed to
the Exchequer.”

Through the Autumn Statement, 2014 Budget and the Finance Bill we have seen proposals allowing HMRC to require an advance payment of tax from:

•                all those with tax schemes, the like of which have been defeated though litigation

•                those to whom a GAAR notice has been issued

•                those with a scheme that has a DOTAS number

Requesting tax is all very well, says HMRC, but we need to focus now on actually getting the money.

The direct recovery proposal materially ups the ante in the Government’s attempt to close the tax gap and substantiate it with actual tax receipts.

I will track this consultation, on which there is sure to be many representations, with interest.

The initial strength and breadth of objections to these proposals would indicate that there will inevitably be some concessions made but it would seem unlikely that some form of DRD will not be implemented.

The publicity generated around these proposals make the subject of DRD one that a financial adviser must have a clear understanding of in order to give an informed and current view to their clients.

Tony Wickenden is joint managing director of Technical Connection

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