Following last week's Budget, the Low Income Tax Reform Group (LITRG) have strong concerns over HMRC's proposal to give itself a new power: to take money directly from the bank accounts of tax debtors who owe more than £1,000 in tax or tax credits.

This power is unprecedented in the UK and the announcement contains 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.

LITRG Chairman Anthony Thomas commented saying:

“HMRC say they will only use their new power where debtors ‘have the financial means to pay’ and have been asked for payment many times. It is unclear how HMRC will determine whether a debtor has the financial means to pay, or by what criteria this will be judged. It is not uncommon for people in straitened financial circumstances to put insistent demands for payment on one side if they lack the means to pay, or to satisfy the most pressing debtor at the expense of others.

“People who owe HMRC £1,000 or just over may simply be people on low incomes or low wages who have got into difficulties and are in debt not only to HMRC but also to others, notably public utilities. To let HMRC raid their bank accounts without safeguards or recourse 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.

“Given the way HMRC continually fail to deal with taxpayers properly or fairly this provision is hugely worrying. To introduce such draconian measures without proper safeguards could well lead to an abuse of power. Besides, it would allow HMRC to steal a march on other creditors in the event of a bankruptcy, something which was abandoned long ago with the abolition of Crown preference in bankruptcy proceedings.”

The leading accountancy bodies have likewise signalled their concerns: the proposal will also put HMRC ahead of other creditors in the event of bankruptcy.

Editorial comment

As most advisers know it is not unknown for HMRC to make mistakes and so safeguards are required to prevent error. The proposed £1,000 deminimis is extremely low given that HMRC Debt Management are apparently not always linked up to the same computer system as HMRC's tax offices and so are unable to check whether the apparent underpayment is infact due to HMRC's misallocation of funds or any other error.