HMRC’s rising power to recover debt

The government has proposed to give HM Revenue & Customs (HMRC) powers to recover outstanding tax direct from bank accounts including Individual Savings Accounts (ISA s). This recent revelation has attracted much criticism in the press.

HMRC claim 10% of taxpayers do not pay their tax on time and that it is only fair that they are pursued promptly for what is owed. It can be argued that strengthening HMRC’s powers will modernise its ability to recover tax and will bring the UK into line with other tax authorities around the world.

How would it work?

The government’s proposal will enable HMRC to collect debts of over £1,000 from those who will have £5,000 or more left in their accounts, after the debt has been paid. Institutions will be instructed to place a hold on the funds. Taxpayers will then have 14 days to settle the tax, or provide evidence of hardship. Where accounts are in joint names, all account holders will be notified of the action taken by HMRC.

It is accepted that HMRC have a duty to collect outstanding tax, but remedies to reverse the impact of any misuse of the power and to provide compensation are lacking. Compensation is likely to be restricted to losses as a direct result of an error made by HMRC, such as interest forgone on deposits seized.

The Treasury set HMRC an ambitious target to increase its yield and HMRC have responded with a number of initiatives including a crackdown on tax avoidance schemes, the publication of names, addresses, occupation and amount of tax owed by individuals and companies; and an increased use of private debt collectors. As a result, HMRC have increased their tax take by 15%, up £3.2bn on last year.

HMRC already gets it wrong

More recently, HMRC was accused of ‘bully-boy’ tactics after letters were sent to individuals suggesting that their tax returns may be incorrect, as the effective rate of tax was lower than expected. The C+T tax team drew this to the attention of industry professional bodies and this was promptly followed by a discussion with HMRC
who advised that the letters were part of a trial. HMRC accepted that no attempt had been made to look at the tax returns which, in many cases, contained details of substantial gifts to charity – providing a tax relief that HMRC is keen to encourage! This reinforces concerns that HMRC does not always get it right.

If you have a query about HMRC or tax in general, please contact a member of our tax team on 0131 558 5800 or email