Debtor pressure increases as HMRC 'modernise' their powers and procedures

16 July 2015

Mike Down

The Chancellor has clarified the position at last on HMRC’s new powers to recover debts directly from the bank accounts of debtors. But at a cost of nearly a million pounds, are these new powers really necessary?

The screws on those owing money to the taxman were further tightened this week with HMRC’s announcement that from 3 August 2015, payments made under a Time to Pay agreement must be made by direct debit.

To appreciate what’s changed, cast your mind back to last year’s Budget when HMRC initiated a consultation detailing proposals to allow a new power of recovery of debts directly from the bank accounts of debtors. Against the background of considerable concern expressed by the influential Treasury Select Committee and numerous professional and business organisations, HMRC envisaged that some 17,000 'won’t pay' cases annually would be subjected to direct recovery. Real fears were expressed that HMRC would simply help themselves to an individual’s money without carrying out sufficient checks to ensure the tax debt was in fact due. The by-passing of the Court in collecting the debt was the most emotive part of the proposal and with one eye on this year’s anniversary, some took the view that the proposals were against the principles established by Magna Carta.

Safeguards were clearly necessary and as a result of the fierce criticism, an indication that the proposals were to be 'watered down' was given in the autumn statement. 

The Chancellor’s Summer Budget has now clarified the position.

HMRC estimates that Direct Recovery of Debt (DRD) will apply to a yearly total of 11,000 cases, all of which will have tax debts in excess of £1,000 and an aggregate of at least £5,000 in the bank - including ISAs. Those affected must be seen by HMRC officials before the process can be completed, and where objections are made, HMRC needs to obtain County Court permission before recovering money from the taxpayer’s bank account. Most agree with HMRC that if those owing tax have funds available, they should readily pay up. However we wonder whether these new proposals are really necessary? 

Apparently the cost to HMRC will be £800,000 over the next five years, and as HMRC envisages only 200 objections per year, it would seem this figure relates to the salaries of staff involved in the interviewing process. HMRC states the new measures – which apply from Royal Assent – are needed on grounds of fairness and to modernise their tax collection powers. But how much will HMRC collect over and above that which it would have done anyway by pursuing the debts in the traditional way via the Court?

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