Market leading insight for tax experts
View online issue

Summer Finance Bill: Direct recovery of debts

printer Mail

Opening Pandora’s box...

In 2004, the Public Accounts Committee suggested that HMRC should seek a new power to recover amounts direct from taxpayers’ bank accounts. In June 2007, the Financial Times sought comments from the CIOT on a rather dry looking HMRC consultation on ‘Payment, repayment and debt’. Buried in the consultation was a short section on ‘Direct attachment of taxpayers’ assets’, on which the CIOT expressed ‘quite serious concerns’ and that it was ‘not clear that there were sufficient safeguards to protect taxpayers’. 
Given the CIOT’s logical stance, the FT ran this as a front page article – on tax! Back in 2007, tax on the front page was unheard of and this triggered a chain of events resulting in HMRC withdrawing the proposal. 
HMRC attempted to open the box again a few years later but now, in 2015, the tax climate has changed. Not only has the lid been unfastened, but it has been flung wide open with the publication of the summer Finance Bill at cl 47 ‘Enforcement by deduction from bank accounts’. 
Clause 47 provides a power to make statutory instruments and introduces Sch 8, which sets out how the new power will work. The key points are:
  • Where amounts are due to HMRC, whether related to tax, tax credit or otherwise, HMRC can recover the sum by deductions directly from accounts, including cash ISAs, held by deposit takers, such as banks. These deductions are subject to conditions A to C:
    • condition A: the sum pursued must be at least £1,000, which suggests a large proportion of PAYE-only taxpayers would be ruled out;
    • condition B: the sum is an ‘established debt’ or due under an accelerated payment notice (APN). APNs are payable once HMRC has considered any representations. Even if HMRC’s considered decision is manifestly wrong, there is no appeal right; and
    • condition C: HMRC must be satisfied that the person is aware that the sum is due and payable. However, the legislation, sadly, does not say how this should be done.
  • HMRC issues an information notice to a deposit taker, requiring it to provide information within ten working days about the person’s account(s), including those held jointly with another person. Banks of all sizes will therefore need systems in place to cope with such a strict obligation within the timescale.
  • HMRC can then issue a ‘hold notice’ to the deposit taker to put a hold on the account, providing that at least £5,000 is safeguarded.
  • There is a further raft of provisions, imposing duties on the deposit takers and granting limited appeal rights to the person, through to penalties for non-compliant deposit takers. 
HMRC has made a number of changes in response to criticism. These include: 
  • the introduction of limited appeal rights. This is welcome, given that HMRC can make mistakes; and
  • the promise of face to face meetings. While a step forward, such meetings are merely given a mention in the explanatory notes, without any statutory safeguard. I am concerned for the individual on low income, perhaps with an unexpected tax credit or tax underpayment, where letters have not been opened out of fear or because they have gone astray. To those individuals, a meeting is surely vital.  
Unfortunately, some of the detail is being left to guidance or statutory instruments that can be changed without a resolution of the House of Commons; this is a major concern. These safeguards should be protected by using primary legislation. 
Practitioners will need to get up to speed and alert their clients to the new rules. In the event that HMRC tries to take control of a business’ funds, leaving them with just £5,000 could prove insufficient for many businesses, leading to some grave consequences. And what if it turns out that the tax was not due? 
Looking ahead, businesses and individuals may need to consider where and whether to keep surplus funds, and if joint accounts are sensible, unless entitlement is well documented.  
The provisions are targeted at those who can but refuse to pay. Yet it is clear that some of those who cannot pay will get caught by the treatment aimed at recalcitrant taxpayers who ‘won’t pay’. 
One of the myths around Pandora’s box was that it included hope: we all hope that we can trust HMRC to get this right.