Allowing HMRC to take money from bank accounts of tax debtors could see it "treated as preferential creditor", accountants warn

Out-Law News | 11 Apr 2014 | 11:08 am | 2 min. read

Proposals announced as part of this year's Budget that would allow HM Revenue and Customs (HMRC) to take money directly from the bank accounts of tax debtors could undermine existing insolvency laws by effectively allowing the department to be treated as a preferential creditor, a top accountant has warned.

Frank Haskew, head of tax at the Institute of Chartered Accountants of England and Wales (ICAEW), said that the "unprecedented" proposed new powers could lead to "perverse effects". In a submission to the Treasury Select Committee, which is currently hearing evidence on the Budget announcements, Askew noted that the plans were at odds with the removal of Crown preference in bankruptcy proceedings.

Insolvency law expert Alastair Lomax of Pinsent Masons, the law firm behind, said that the proposal was clearly an attractive one for the Treasury. However, he said that the knock-on effects for banks and insolvency professionals could be severe.

"There is no doubting that the taxman is particularly exposed when a business faces insolvency," he said. "It is not surprising that the Exchequer is seeking ways to shore up HMRC's position after five years of austerity - perhaps as a quid pro quo for the time to pay schemes which kept the wolf from the door of many businesses during the last recession. However, these plans will appear to many to be a de facto reversal of the policy introduced by the Blair government which saw the abolition of the Crown's right to recoup its losses preferentially, ahead of other secured creditors."

"Banks, asset based lenders and other stakeholders should pay close attention to these developments. The taxman's power to 'grab' bank balances would be a powerful weapon with the potential to shift the balance of power in both consensual restructurings and formal insolvencies," he said.

As part of this year's Budget, the Chancellor of the Exchequer said that HMRC would be given the power to take money directly from the personal bank accounts of tax debtors who owe more than £1,000 in tax or tax credits. Few details of what will be involved have emerged ahead of a planned consultation in the summer, but the proposal is aimed at those who "have the financial means to pay, and have been contacted multiple times by HMRC to pay", according to the Budget document.

"The proposal is of considerable concern to many taxpayers and accountants as this power is unprecedented in the UK," said the ICAEW's Frank Haskew. "Other than a comment that a minimum of £5,000 would be left in debtors' accounts, there are no details yet of any judicial or other safeguards that could protect taxpayers."

The ICAEW has set out a number of questions which it has said that the government needs to answer in order to give stakeholders a "clearer idea of how these new powers will work and how they will impact on the taxpayer. These include how debtors' 'financial means' would be determined; and what steps would be put in place to ensure that taxpayers would not face financial hardship after their funds were seized, he said.

"We believe it is imperative that there are proper safeguards and there should be proper judicial oversight of any decisions made with rights of appeal," he said.