The Direct Recovery of Debts consultation: HMRC is now consulting on possibly the most terrifying new power ever proposed. It wants to be allowed to recover tax and tax credit debts directly from debtors’ bank accounts. Unsurprisingly, there is a lot of opposition to this proposal, not least because HMRC is considering that debtors once targeted should have no right of appeal.

Under the proposal, which was announced by the chancellor at Budget 2014:

  • HMRC would be able to collect debts from taxpayer's bank accounts.
  • It would be able to use this power to collect debts of over £1,000 which might in fact be made up of several smaller debts.
  • It won't take money from bank accounts unless there is a balance in excess of £5,000.
  • HMRC will have to be able to monitor accounts balances as well as retain taxpayer's bank details in order to make collection.
  • HMRC estimates that this would apply to 17,000 taxpayers and tax credits claimants.

MPs from the Treasury Select Committee have in their report on the 2004 Budget expressed "considerable concern" at HMRC's proposals which could, they note "develop into a return to Crown preference by stealth." The Committee considers a lengthy and full consultation essential with extensive examination of the consultation as well as further evidence. Adding that "giving HMRC this power without some form of prior independent oversight — for example by a new ombudsman or tribunal, or through the courts — would be wholly unacceptable."

The Committee also made the following points:

  • The chancellor argued that the measure is justified because the Department for Work and Pensions already has the right to take money directly from people’s bank accounts to pay child maintenance. However, the DWP in that function acts as an intermediary between two individuals. HMRC would be acting not as an intermediary between two individuals but rather in pursuit of its own objective of bringing in revenue for the Exchequer.
  • The policy is highly dependent on HMRC’s ability accurately to determine which taxpayers owe money and what amounts they owe, an ability not always demonstrated in the past. Incorrectly collecting money will result in serious detriment to taxpayers.
  • The Government must consider safeguards, in addition to those set out in the consultation document, to ensure that HMRC cannot act erroneously with impunity. These might include the award of damages in addition to compensation, and disciplinary action in cases of abuse of the power. 
  • The ability directly to have access to millions of taxpayers’ bank accounts raises concerns about the risk of fraud and error, and this should also be covered by the consultation.
  • Following the merger of HM Customs and Excise and the Inland Revenue in April 2005, an extensive review of HMRC’s powers, deterrents and safeguards was carried out from 2005 to 2012. The Committee believes that sufficient time has now passed to warrant a post - implementation review of these powers. The aim of this review should be to ensure that all the powers HMRC has at its disposal remain relevant and are no more than are sufficient to enable HMRC to achieve its objectives.

The Chartered Institute of Taxation (CIOT), representing also the Association of Taxation Technicians (ATT) and the Low Incomes Reform Group (LITRG) in giving evidence on the budget to MPs said:

"This power is unprecedented in the UK and the announcement contained no details of any judicial or other safeguards that would protect taxpayers on low incomes struggling with debt problems – apart from a stipulation that a minimum of £5,000 would be left in debtors’ accounts....To let HMRC raid their bank accounts without safeguards or re course to the courts – or with inadequate safeguards – would be to flout the rule of law in a manner unworthy of a public service body. It is not the same as seizing physical goods, it is depriving the debtor of the very means to live."

The Institute of Chartered Accountants in England & Wales (ICAEW) has reviewed the consultation and expressed its concerns that this tough new power carries many risks and as proposed carries inadequate safeguards. 

" Our concerns include whether HMRC can be relied upon to have accurate information and exercise its judgement properly, the adequacy of appeal rights (which are not clearly explained), and the fact that HMRC is in effect becoming a preferential creditor."  

The ICAEW says that it accepts "that HMRC has a duty to collect tax which is legitimately due, and that it should take firm action against those who can pay but won’t. However – we do not support the introduction of this new power and do not think the safeguards are adequate. We think it is wrong in principle and infringes fundamental civil liberties that no-one should access someone else’s bank account without their permission or under the supervision of a judge." ​


HMRC: consultation on the Direct Recovery of Debts

Consultation runs from 6 May to 29 July 2014