Direct Collection of Tax by HRMC from Bank Accounts
The truth about the proposals.
Despite the fact that the proposal was revealed in the Budget on 19 March, the media has only just got excited / outraged about proposals for HM Revenue & Customs to directly access taxpayer bank accounts to collect outstanding tax debts. So are they right to make such a big deal of the proposals, and what is HMRC actually suggesting?
The first point to make is that the changes are currently only proposals subject to public consultation, so if you don’t like them, now is the time to tell HMRC so, as the plans have been officially put out for consultation this week, with a deadline for replies of 29 July 2014 – you can find the consultation document at www.gov.uk/government/consultations/direct-recovery-of-debts. Don’t look under “Current Consultations”, because oddly enough it does not, at the time of writing, appear there!
To summarise, the main aspects of the proposals are as follows:
- In relevant cases, HMRC will be granted access to bank, building society and individual savings accounts.
- Joint accounts will be dealt with on a pro rata basis (see below).
- Only debts in excess of £1,000 will be subject to the proposed powers.
- The tax debts concerned will be ‘established’ (see below) and the debtor will have received between 4 and 9 previous pay demands.
- At least £5,000 will be left in the taxpayer’s accounts overall.
- Payment of the amount owed will be frozen for 14 days to allow payment by the taxpayer using more orthodox means.
HMRC points out in justifying the proposals that they expect them to apply to around 17,000 cases per year, featuring an average tax debt of £5,800. In half of these cases the taxpayer is expected to have at least £20,000 in bank etc accounts.
A couple of points require further comment. The default position for the pro-rata approach to joint bank accounts will be that joint account holders are equally entitled to the funds in the account, and thus HMRC will only access the element relevant to the defaulting taxpayer (subject to the £5,000 minimum detailed above). Given that there is provision for joint account holders to specify to HMRC sharing arrangements other than 50% for tax purposes, one wonders if that means that anyone with tax debts will hurriedly specify that all of the account belongs to their co account-holder?
The concept of an ‘established’ tax debt is also interesting. It appears that this will relate more to the measures taken by HMRC to collect the money than to measures taken to establish the legitimacy of the tax charge, for example by a hearing before the Tax Tribunal. Thus it is possible that the debt may relate to tax due on exercise of best judgment by HMRC rather than tax accepted as due by the taxpayer, which I can see causing problems if the proposed regime is introduced.
Subject to these concerns, I find it quite difficult to share all of the media concern about the proposals. Whatever options taxpayers might choose in dealing with a disputed tax bill, or a bill they are struggling to pay, ignoring it and hoping it will go away is not a wise one to go for. There are clear opportunities for taxpayers to ask for time to pay tax if they are in financial difficulties, or to resolve tax disputes either by peer review within HMRC or independent hearing by the Tax Tribunal. By the time HMRC have made half a dozen or more concerted efforts to contact the taxpayer to arrange payment, it is not unreasonable to assume that he or she is well aware of the situation.
One concern that some will have about the proposals is that taxpayers who have changed address may not receive relevant correspondence from HMRC, and may thus fall foul of the provisions without knowing about the debt. In practice, however, if HMRC is going to be able to access the taxpayer’s bank account, they are presumably going to be able to identify the taxpayer’s current whereabouts via the bank, so this problem should hopefully not arise in practice.
Thus overall I am not unduly concerned about the proposals, although as ever it will be necessary to see them in practice before reaching a final judgment. I find it difficult to object too strongly to anything that gives HMRC power to collect tax due to them from people who can afford to pay them.
Mark Simpson
Simpson Tax Consultancy Limited