It has been proposed that HM Revenue & Customs (HMRC) should be given the power to collect tax debts directly by having the ability to access a taxpayers’ bank accounts. The question is how far will these powers go? From HMRC’s point of view the intention is to collect debts in the most efficient way and ensure they receive the tax owed.
However will HMRC use the proposed power to take from people who can afford to pay but simply choose not to or will they take it one step further?
Why does HMRC want the additional power?
Government figures show that approximately 10% of tax is not paid when due and is therefore pursued as debt. Statistics also show that for taxpayers who owe more than £1,000 in tax, almost half have over £20,000 in the bank! Now it seems unfair that these taxpayers don’t pay up on time when most other taxpayers do.
In addition, HMRC also anticipate the additional power will raise approximately £100m per year in tax and from reduced costs on chasing outstanding debts.
HMRC already have several methods of collecting debts in their arsenal such as pursuing debts through private debt collection agencies, collecting through PAYE codes and taking control of goods (other than land). However, these current methods are all much less efficient and more expensive than the new proposed powers.
Direct Recovery of Debts
The proposal is that HMRC will have Direct Recovery of Debts (DRD) which will enable HMRC to recover cash directly from bank accounts, building society accounts and ISAs of debtors who owe £1,000 or more without the need to apply for a court order.
The proposal does include some safeguards which can give some reassurance to bank and building society account holders that HMRC will only use the proposed power as intended. It is proposed cash would only be taken if suitable funds are available after leaving the debtor with £5,000 and that they are able to meet their necessary day to day regular costs. HMRC would initially request the banks and/or building societies to hold the funds, while HMRC contacted the debtor giving them an additional 14 days to pay, to object or provide evidence of hardship. If no action is taken by the debtor the funds would be taken by HMRC.
Direct Recovery of Debts – Things that can go wrong
HMRC do not have a fantastic record of getting things right first time and controls would have to be put in place to ensure the wrong person’s bank accounts are not targeted, that hardship and mistakes are corrected quickly and what HMRC deems to be tax owed is actually owed!
What do you think? Is the proposed policy a modernisation of existing powers or a step too far?
