Direct Recovery of Debts – HMRC listen to the concerns

Wed 03 Dec 2014

HMRC goes ahead with the introduction of Direct Recovery of Debts but introduces new measures to safeguards taxpayers. This measure should bring some small  degree of comfort to those who owe money to HMRC and were concerned at the proposal that would allow HMRC direct access to their bank accounts.

The initial proposal for the Direct Recovery of Debts would have allowed HMRC almost unrestricted access to the bank and building society accounts of taxpayers who had funds but were not paying their debts to HMRC. This proposal caused considerable concern to the accountancy and legal professions who saw it as a means for HMRC to circumvent the process by which other creditors normally have to pursue a debt, and as failing to provide any consideration of the mental or physical condition of the debtor. The revised proposals contain a number of important safeguards to limit HMRC’s powers, most importantly that of an appeal to the County Court in a case of dispute.

The Direct Recovery of Debt (DRD) is a proposal that would allow HMRC direct access to the money in the bank and building societies of individuals who owe money – whether for tax or tax credits – to HMRC.

Based on the supposition that there are taxpayers who can pay but won’t pay, the initial proposal was justified on the grounds that it would ‘level the playing field’ for those taxpayers who can pay and do pay. However, on consultation, it was suggested by many members of the accountancy and legal professions that it would actually afford HMRC an unfair advantage over those other taxpayers who might also be owed money by the same debtor! Additionally, a trader or professional who is owed money has to go through the Courts to pursue their debt, and a debt that is unjustified can be thrown out. Whereas, in the HMRC proposal, it would simply be HMRC who decided what was due. Further there were concerns for the affairs of vulnerable individuals whose failure to pay might be attributable to other issues altogether.

The new proposal limits the HMRC powers and requires that there must be at least one face-to-face visit between an HMRC agent and the individual before the DRD powers are invoked. However, more importantly, the revision also includes a right of appeal to the County Court, perhaps putting HMRC back on more of an even footing with the other creditors. Additionally, the revised proposal intends that there be a slower implementation in the first year to enable HMRC to gain experience and feedback. One remaining concern, however, is that HMRC will be able to use these powers on joint accounts, meaning that ‘innocent’ joint account holders could also be affected.  HMRC proposes to deal with this by identifying the proportion of the funds in a joint account which belong to the recalcitrant taxpayer.  At this stage we don’t know how HMRC proposes to go about this.