Under proposals in a recent consultation, HMRC would be given wider collection powers when a taxpayer refuses to pay outstanding tax. The plans for the Direct Recovery of Debts (DRD) have received opposition from the professional bodies plus a flurry of activity in online forums and the technical press.
The objective is that outstanding debts due to HMRC may be collected directly from a taxpayer's bank or building society account, where previous attempts to contact the taxpayer have been unsuccessful. The HMRC consultation document proposed that HMRC must attempt to contact taxpayers, who owe tax or tax credit repayments of £1,000 or more, a minimum of four times before DRD proceedings commence. It is estimated that this affects around 17,000 taxpayers.
The aim is to tackle those taxpayers who have the funds, but inordinately delay making payment. Rather than waiting to go through the lengthy and costly legal process to get a court order, HMRC would be able to apply to a bank to recover the money without recourse to a court. The collection process will sometimes be outsourced to private operators.
There is to be an interim stage in which the bank will be instructed to put the funds 'on hold' before being paid over to HMRC. This will give time for account holders to raise objections or arrange a formal time to pay agreement with HMRC. However, the risk is that this could still cause significant financial hardship, especially in the event HMRC makes an excessive demand for tax or fails to make actual contact.
HMRC states that it will only collect debts this way when a minimum of £5,000 will be left in any of the taxpayer's accounts. There will need to be safeguards to cover important potential areas of contention, in particular the position with joint accounts (perhaps where one account holder is not actually the beneficial owner) and how HMRC will ensure the correct amount of tax is recovered from an appropriate account of the taxpayer.
The consultation period ended in July. If this proceeds, draft legislation is expected later this year. While the final guidance is still unclear, the proposal does highlight the need for HMRC to be kept informed of any change to the taxpayer's address, so that taxpayers do not find themselves having funds removed from their accounts if they are unaware of a debt due to HMRC.
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