Out-Law News | 05 Sep 2014 | 11:48 am | 4 min. read
The e-petition on the direct.gov website was launched last month by Mike Truman, editor of Taxation magazine.
If enacted the direct recovery of debt power would allow HMRC to recover tax and tax credit debts directly from debtors’ bank and building society accounts, including Individual Savings Accounts (ISAs) – without having to obtain a court order. The proposals were contained in a consultation document published in May.
The e-petition states that the proposals "have been widely criticised [by representative bodies, charities and civil liberties groups] as poorly conceived, unworkable, and severely deficient in safeguards. They should not be implemented in Finance Act 2015. Instead they should be withdrawn and sufficient time given to carry out a wide-ranging consultation on the problem of deliberate non-payment and potential solutions."
Ray McCann, a tax expert at Pinsent Masons, the law firm behind Out-law.com, said "Although many support HMRC's objectives in trying to recover tax debts, HMRC's proposals are not the best way to achieve those objectives and the lack of proper oversight gives taxpayers little confidence that the powers would be used appropriately".
He said "In the final analysis requiring HMRC to undergo some independent oversight before they are able to take funds from a taxpayer's bank account is not the most radical idea that anyone ever suggested. It does not need to be a Court since we have a Tribunal system that already plays an important part in the regulation of HMRC powers and going forward it feels somewhat odd that HMRC needs the approval of a Tribunal Judge to require a bank to give customer account details but can simply demand that the bank hand over the account itself!"
It is proposed that the power would be available in respect of debtors who owe tax or tax credits in excess of £1,000. Safeguards are proposed including that a minimum of £5,000 be left in the taxpayer's accounts.
HMRC said "This measure will modernise HMRC’s ability to recover tax and tax credit debt from those who have been contacted by HMRC repeatedly to pay what they owe and have sufficient funds in their accounts". HMRC estimated that, of those who owe more than £1,000 in tax and tax credit debt, 73% have over £10,000 in their accounts and 21% have over £50,000.
It said that "debtors will have been contacted several times by HMRC – and will have had multiple opportunities to pay – before getting to the stage where HMRC needs to take action to recover the debt".
HMRC currently has the legal power in England and Wales and Northern Ireland to seize certain types of goods without first needing to apply to the courts, as other creditors must. Although it cannot enter a taxpayer’s home or premises unless its officers are invited in or have a warrant. Where the debtor does not have sufficient physical assets but has cash, HMRC has to obtain judgment for the debt in court before it can access cash in bank or building society accounts. HMRC said "This gives debtors plenty of notice before enforcement can be taken, providing an opportunity for the debtor to move or dissipate their assets and make debt recovery more difficult."
Under the proposals HMRC would use the bank, building society and ISA account information it already holds in respect of interest payments to see whether debtors have sufficient funds. It would then contact the bank or building society to ask for 12 months of past account information on the debtor to see details of current balances and the debtor's outgoings.
The bank would be instructed to hold funds up to the value of the debt for a fourteen day period during which the taxpayer would be able to object that removal of the funds would cause undue hardship, that the funds were not his or that the debt was no longer due. The consultation document states that "If the debtor objects and HMRC does not uphold the debtor’s objection, they will continue to have the right to judicial appeal on the use of DRD".
However, it is not clear from the document whether the "right to judicial appeal" means that the taxpayer could apply for judicial review of HMRC's conduct, or whether there will be some appeal process.
The Institute of Chartered Accountants in England and Wales (ICAEW) said in its response to the consultation “HMRC should not have the power to collect debts from bank accounts without independent judicial oversight: this contravenes the constitutional principle of separation of powers”.
The Chartered Institute of Taxation said: “We can provide numerous examples of occasions where HMRC has sought to collect disputed debts, or even debts that have already been paid, despite repeated requests from agents to stop the collection process until the matter has been properly resolved.”
The ICAEW said that many of those who may be affected "“… may not have fraudulent intent, but may have personal, heath or financial problems which mean they are terrified to contact HMRC. It is not unusual for such people to have mental health problems. Those in this category need assistance to sort things out.”
McCann said "I see the answer to many of the problems HMRC face as capable of being resolved by improvements to basic HMRC processes".
The consultation period closed on 29 July and the government is expected to report back in the Autumn Statement on 3 December.
Last month a consultation document was published on proposals for a 'strict liability' offence for offshore tax evasion.