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Direct Recovery of Debts – new safeguards

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4 December 2014

Following our news article in July (link here) on the proposed new powers for HMRC to recover tax debts directly from a taxpayer’s bank account, there have been some new developments.  It seems that HMRC have listened (in the main) to the concerns of the industry practitioners and professional bodies and have somewhat scaled back their powers.

What has changed?

The main concern for most was that there would be no independent oversight of the new powers granted to HMRC.  This has been addressed in the Government’s response to the consultation (published on 21 November 2014) and there is now the right to appeal to a county court.  This moves away from HMRC effectively having complete power in the original proposal such that the taxpayer was only going to be able to make representations to HMRC.

Another safeguard introduced as part of the consultation response is the requirement for a face-to-face meeting with HMRC staff and the taxpayer for those who are being considered for direct recovery of debts to be applied.  This has been welcomed as could avoid HMRC from being left in an embarrassing situation e.g. if the taxpayer is later found to be deceased, does not reside at the address the correspondence has been sent to etc.

Our initial view on this, however, is that this legislation is aimed at those who have already ignored several demands for payment and, therefore, surely they will just avoid having a face to face meeting also? 

A few of the other changes from the original consultation include:
  • Time to object is to be increased from 14 days to 30 days, where the taxpayers money will be frozen but will not be taken
  • HMRC will provide additional support for vulnerable taxpayers
  • HMRC will no longer ask the banks to provide 12 months debtor history for the taxpayer
  • Scotland will be removed from the scope of the powers

What has stayed the same?

Parts of the original proposals will be retained including only using these powers where:
  • The outstanding tax liability is £1,000 or greater;
  • The taxpayer has been contacted by HMRC a minimum of four times (but it is suggested the average will be more like nine times);
  • The tax due is not in dispute;
  • A Time to Pay arrangement is not in place; and
  • A minimum of £5,000 is left within the bank account(s) of the taxpayer following the recovery of the tax debt.

Conclusion

HMRC have said that they will only use this power in a limited number of cases in the first year and will disclose full details following this.  They have also advised that they will delay the legislation from the 2015 Finance Bill until the second Bill following the election.

We will, therefore, likely have to wait until the 2016-17 tax year to see whether these new powers are widely used by HMRC and whether they prove to be an effective tool for the collection of outstanding tax debts.