A controversial new Government proposal – the Direct Recovery of Debts (DRD) – could soon empower HMRC with the ability to recover debts directly from the bank accounts of businesses and individuals who have refused to settle their tax liabilities.
A new consultation, which closes on 29th July 2014, outlines how new powers would enable the tax authorities to access the bank, building society and ISA accounts of people who are able to pay their taxes, but for whatever reason, actively fail to do so.
According to the Government (using at least two well-worn clichés in a single sentence), the DRD initiative “will help to level the playing field, ensuring the honest, hardworking majority are not disadvantaged by the minority that dodge their responsibilities.”
HMRC says that there are around 17,000 cases each year where these new rules would apply. The average debt is around the £5,800 mark, and astonishingly, half the individuals and businesses who deliberately fail to pay their taxes can easily afford to do so – as they have average savings of £20,000.
What safeguards are being proposed?
So, if new legislation is drawn up following the consultation period, what safeguards will be put in place, to prevent people being targeted unfairly (or, heaven forbid, HMRC making errors)?
These safeguards will include:
- Action only being taken after all other efforts have been exhausted (when the timetable for appeals has passed).
- HMRC will attempt to contact debtors to resolve their outstanding liabilities at least four separate time before taking action.
- Only people who owe £1,000 or more in back taxes (or tax credits) will be targeted by the DRD initiative.
- At least £5,000 must be left in a debtor’s combined bank accounts after any unpaid debts have been seized.
- In a last effort to resolve matters, HMRC will give debtors a final 14 day opportunity to arrange payment once bank accounts have been put on hold.
Does measure infringe civil liberties?
Reaction to the proposed measure has been firmly negative, ever since it was first mentioned during Budget 2014.
The Treasury Committee’s reaction to the Budget proposal (PDF here) is highly critical – particularly as the new measures would be particularly harsh for lower income individuals. Unlike the seizure of business assets, the new rules could “deprive the debtor of the very means to live.”
The Committee has strongly urged the Government to reconsider the proposal, which, it argues “could develop into a return to Crown preference by stealth.”
Three major tax bodies provided evidence to the Committee (all highly critical).
One particular concern for the ICAEW is “whether HMRC can be relied upon to have accurate information and exercise its judgement properly.”
The tax body also questions whether or not the measure “infringes fundamental civil liberties” – should HMRC be able to access a personal or business account without the owner’s permission, and without the supervision of a judge?
You can access the consultation document here.