Government dilutes plans for direct recovery of debts by HMRC

Out-Law News | 24 Nov 2014 | 3:57 pm | 2 min. read

The government will proceed with plans to give HM Revenue & Customs (HMRC) new powers to withdraw funds directly from bank accounts to claim unpaid taxes from debtors, but has introduced new safeguards in light of criticism of those plans.

Under the new direct recovery of debts (DRD) proposals (27-page / 316KB PDF), HMRC would be unable to withdraw funds directly from tax debtors' accounts without first holding a "face-to-face" meeting with those individuals.

The move would, in part, help to ensure that HMRC is pursuing the right individuals for unpaid tax debts, HMRC said. Critics of DRD, which HMRC first consulted on in May, had identified the risk of mis-identification as a problem with the plans.

"This meeting will provide a further opportunity for HMRC to: personally identify the taxpayer and confirm it is their debt; explain to debtors what they owe, why they are being pursued for payment, and discuss payment of the debt; discuss options to resolve the debt, including offering a Time to Pay arrangement to the debtor, where appropriate; identify debtors who are in a vulnerable position and offer them the support they need to settle their debts," HMRC said in a paper that detailed a summary of the responses it received to its May consultation.

"Only debtors who have received this face-to-face visit and are not identified as vulnerable, have sufficient money in the bank and have still refused to settle their debts, or enter an appropriate Time to Pay arrangement, will be considered for debt recovery through DRD," it said.

The government intends to put forward new legislation on DRD in a new Finance Bill in 2015 during the next parliament. This means that the proposals will not be in the pre-election Finance Bill. The rules will restrict DRD powers being used by HMRC in cases when less than £1,000 in tax is owed and where consumers would have less than £5,000 across their accounts once unpaid taxes are claimed, according to HMRC's latest plans.

Under the revised plans, debtors will have 30 days to appeal against the holding of funds in their accounts by HMRC under its DRD powers before the funds are transferred. Debtors will also be given a limited right to take an appeal to a County Court. The Commissioners of HMRC will also be given oversight of HMRC's administration of DRD powers, among other measures to be proposed.

HMRC said it had decided to scrap plans it had originally consulted on which would, if they had been introduced, have required banks to provide it with a 12-month history of debtors' account use. This, it had said, was to "ensure that HMRC does not inadvertently cause hardship for the debtor when applying DRD to those accounts". However, HMRC said privacy concerns had been raised with it on those proposals and that it had decided against progressing with them.

HMRC said it would use its DRD powers "on a small, targeted basis" in its first year of having the powers so as to "gain experience and feedback" before deciding to utilise the powers more widely. It said it would "consider paying financial redress which is appropriate and fair" if it does make a mistake in using its DRD powers.

"The changes announced reflect a clear acceptance by the government that the original proposals would be unfair and could have caused significant hardship," tax expert Ray McCann of Pinsent Masons, the law firm behind Out-Law.com, said. "Despite the proposed changes, DRD remains a problematic proposal and improvements to basic HMRC procedures should be given priority to increase taxpayer confidence in the system. If implemented DRD is likely to be a more costly approach and concern over the viability of the approach will remain."

Exchequer Secretary to the Treasury David Gauke said: "This government is determined that everyone should make their fair contribution to paying for public services and bringing down the deficit. This determination includes cracking down on those who are deliberately trying to avoid paying what they owe. HMRC’s use of direct recovery of debts powers will be strictly limited and targeted, only at the small group of debtors who refuse to pay what they know they owe. It will not affect the vast majority of compliant individuals and businesses."