HMRC Tax Recovery Plan

In this latest tax news we examine the new safeguards announced for HMRC's controversial tax recovery plans

The Treasury has introduced new safeguards to protect taxpayers from the controversial plans, which allow HMRC to remove money from the bank accounts of those with tax debts.The Treasury has introduced new safeguards to protect taxpayers from the controversial plans, which allow Her Majesty's Revenues and Customs (HMRC) to remove money from the bank accounts of those with tax debts.

In his latest budget speech, Chancellor George Osborne had announced new powers for the HMRC, which allowed them to take money directly from the bank accounts of anyone with a tax liability of more than £1,000. Named as Direct Recovery of Debt (DRD), this power was subject to certain safeguards for taxpayers. One of the safeguards was that HMRC will leave at least £5,000 in the bank account of the debtors. Following this announcement, there was a huge outcry among the public, leading the Treasury to reduce some of the DRD powers.

The revised safeguards for DRD provide taxpayers with more time to appeal before money is withdrawn from their bank accounts. If a taxpayer objects to a DRD request, they now have 30 days to request a review with the HMRC, as opposed to 14 days according to the earlier provisions. And if the HMRC denies a review, the taxpayer will now have additional 30 days to appeal to a County Court.

Additionally, under the new safeguards, HMRC will be required to have face-to-face meetings with debtors before making any withdrawals. This is an improvement from the earlier proposal, which outlined only four attempts to contact the debtor as a criteria before using DRD. Face-to-face meetings would ensure that HMRC is dealing with the right person, and will also help in getting a direct acknowledgement from the debtor on the debt owed. As per the government, these meetings can be used by taxpayers to either challenge the DRD or to settle the debt in question. Also, the face-to-face meetings will also help HMRC in identifying vulnerable members who should be excluded from the DRD process.

HMRC's powers for DRD have also been reduced in terms of checking the debtor's bank balance with a building society or a bank. Earlier, banks or building societies were required to provide 12 months of data of the debtors if asked by the HMRC. Under the new rules, HMRC will only get information about the present account balance, and nothing more.

The Association of Chartered Certified Accountants have welcomed these new safeguards for DRD. According to Joanna Elson, CEO of the Money Advice Trust said the changes are an improvement from the earlier provisions. However, Joanna has expressed her reservations about any DRD errors from HMRC, which may leave people with financial difficulties in a much worse state.

One of the critics of the earlier rule, the Low Incomes Tax Reform Group, has approved of the new safeguards. However, they have warned that their approval is a guarded one until they see the draft legislation and understand the meaning of 'vulnerable' under the new rules.

Who will be considered for recovery through DRD?

The Treasury has assured that DRD powers will be used only against taxpayers who have a consistent track record of refusing to respond to HMRC or not paying their tax dues. Apart from this, the debtor should meet the following criteria before HMRC exercises DRD against them.

  • HMRC has had a face-to-face meeting with the debtor
  • Debtor has not been identified as vulnerable
  • Debtor has enough money in the bank, but is refusing to pay to the HMRC
  • Debtor is refusing to enter into a suitable Time to Pay arrangement

If the taxpayer was insolvent at the time DRD was used on his account, any funds taken out would be returned by the HMRC.

As per estimates of the budget paper, around 17,000 people are expected to be subject to DRD, each with a tax debt of £5,800 on average. Nearly 50% of these cases will involve debtors with a balance of over £20,000 in their bank or building society accounts.