Out-Law News 3 min. read

New tax collection powers need stronger safeguards, says Treasury Committee, in 2014 Budget report

Proposed new powers that would allow HM Revenue and Customs (HMRC) to recover unpaid taxes directly from the bank accounts of debtors risks “developing into a return to Crown preference by stealth” without full and extensive consultation, according to an influential committee of MPs.

Publishing a report on this year’s Budget announcements (124-page / 830KB PDF), the Treasury Select Committee said that it would be “wholly unacceptable” if the plans went ahead without some form of prior independent oversight, such as decisions taken by a new ombudsman or tribunal. It said that it would take “further evidence” on the proposals, following the publication last week of more information about the proposed new power.

Abolished by the then Labour government in 2003, Crown preference gave HMRC and other agencies the right to recoup their losses ahead of other creditors in insolvency cases.

Commenting on the proposals, committee chair Andrew Tyrie said that their success and fairness was “highly dependent” on accuracy from HMRC about which taxpayers owed money and how much they owed - something it had not always been able to demonstrate in the past, he said.

“People should pay the right amount of tax,” he said. “But HMRC does not always ask for the right amount.”

“Some taxpayers may find money taken from their accounts that later should be paid back. That would be unacceptable. Exceptional powers such as this require prior independent oversight. The government must demonstrate that it has death with the committee’s concerns before proceeding,” he said.

The report recommended that the government consider safeguards over and above those set out in last week’s consultation document, such as awarding damages as well as compensation to those who had money taken from them erroneously or disciplinary action against HMRC “in cases of abuse of the power”. This would ensure that HMRC could not make mistakes “with impunity”, the report said.

The Chancellor of the Exchequer announced that HMRC would be given the power to take money directly from the personal bank accounts, including ISAs, of tax debtors who owe more than £1,000 in tax or tax credits as part of March’s Budget. Last week’s consultation added “safeguards” ensuring that only those who had repeatedly ignored a minimum of four attempts by HMRC to make contact, and who would be left with at least £5,000 across all bank accounts, would be targeted. HMRC intends to place a hold on debtors’ accounts and given them 14 day to contact HMRC and arrange payment before taking any money.

Tax expert Ian Hyde of Pinsent Masons, the law firm behind Out-Law.com, said that these safeguards were “reassuring, but only up to a point”.

"There may be some sympathy with HMRC where taxpayers are determined not to pay tax that is clearly due, but HMRC has not offered any reassurance that preexisting debts won't be caught, opening up another layer of retrospection to recent enforcement powers," he said. "More generally, as the committee points out, HMRC does not have a track record of getting basics right and for those who are wrongly targeted, the effects will be traumatic."

The committee set out its "deep reservations" about the extent to which recent government announcements would allow HMRC to take retrospective action more generally in its report. In particular, it said that the government had not sufficiently justified its extension of the requirement for taxpayers to pay any disputed tax associated with a scheme HMRC had been notified of under the Disclosure of Tax Avoidance Schemes (DOTAS) rules upfront; a policy which would retrospectively apply to some 65,000 cases that had not yet been settled.

"Retrospection runs counter to the committee's principles of tax policy," Tyrie said. "In particular, it undermines certainty. Retrospection should be considered only in wholly exceptional circumstances. The latest measure would have to be justified on those grounds."

The committee did, however, welcome the "greater flexibility and choice" retirement savers would be given under the government's proposed pension reforms, also announced as part of the Budget. From next April, the government intends that members of defined contribution (DC) pension schemes would be able to access their savings in any way that they choose from the age of 55. The plans also include a new legal duty on pension providers and trust-based pension schemes to offer free and impartial face to face financial guidance at the point of retirement.

Although the pensions minister has since confirmed that this 'guidance guarantee' would not cover free independent financial advice for every saver, the committee emphasised the importance of this guidance in helping consumers "navigate a market which is undergoing major change" and where providers were likely to market and offer a range of new products. Guidance should be 'demonstrably impartial' and include at least an initial opportunity for face to face consultation, while making any limitations and consumer protections clear to the consumer, the committee said.

The committee also emphasised how "crucial" it was that any new products created to fit the new, more flexible market for retirement savings and income provision be sold responsibly, and not be defective.

"Following the financial crisis, and the mis-selling scandals, the reputation of the industry is under scrutiny," said Tyrie.

"The Financial Conduct Authority (FCA), with its new powers of intervention, will also be under the spotlight. This will be an important test of its commitment to develop judgement-led regulation. Effective regulations are badly needed, encouraging innovation, but the FCA must also act quickly to bear down on consumer detriment where necessary," he said.

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