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HMRC’s Proposed Debt Recovery Powers Criticised

HMRC’s Proposed Debt Recovery Powers Criticised

Leading trade organisations have criticised plans outlined by Chancellor George Osborne to allow Her Majesty’s Revenue & Customs to take taxes directly from taxpayers’ bank accounts.

Under the Direct Recovery of Debts (DRD) scheme HMRC would be granted powers to seize unpaid tax directly from individuals' and businesses' bank accounts without applying for court approval. HMRC has claimed that it will only target taxpayers who owe more than £1,000 and have sufficient funds to pay and still leave a minimum £5,000 buffer across all their accounts (including bank and building society accounts and ISAs).

When HMRC identifies a suitable account for DRD, it will first notify the bank or building society to freeze funds up to the value of the debt. The account holder will then be notified and will have 14 days from the date of notification to either pay by other means or object.

Small businesses worried tax proposals

In a letter to HMRC, the head of the British Bankers’ Association, Anthony Browne, said that banks do not believe that the taxman can be trusted to fairly and safely take money from peoples’ accounts.

“It is clear that HMRC’s performance cannot yet be considered as sufficiently competent to wield an unchecked power this strong, at least not without significant reputational damage and potential litigation. HMRC would effectively be a judge in its own cause,” the letter states.

The letter also urges Mr Osborne to seek legal advice on whether the rules would breach the Human Rights Act.

The BBA’s concerns are shared by the Law Society, with a spokesman for the professional association branding the debt recovery proposals as “draconian and regressive”.

The Society’s Gary Richards said that lawyers fear that HMRC ‘has a tendency to press on even when it has not demonstrated any need for additional powers”.

“We agree that tax that is due must be paid, but HMRC’s existing powers – if properly used – are sufficient. There are already streamlined procedures for recovery of tax due in UK courts. We are concerned that the direct recovery of debt from bank accounts without judicial supervision may not comply with data protection or human rights legislation.”

Small businesses have also hit out at the plans, saying that they feel the proposals could be seen unfairly targeting small firms. They also believe that the proposals fail to take into account unexpected costs often facing small businesses such as stock or new investment, which can be considerable and above the allowed £5,000 cash safety net outlined in the plans.

"Our members are unequivocal in their condemnation of tax avoidance and the tax evasion practices that have received significant coverage in the media, in particular the practices of large corporates. However, many of our members already feel that they are unfairly targeted by HMRC and these proposals do little to dispel this commonly held belief. The smaller scope of their operations means many small business owners feel much more vulnerable to investigations than larger firms with more complex tax arrangements,” the Forum of Private Business’ Alexander Jackman explains.

Return of cash under the mattress

Experts believe that if the plans are implemented around 17,000 people a year would have money seized under the debt recovery powers, all without the need for HMRC to go to court. Concerns have also been raised that the new rules may lead to a return of a cash under the mattress culture, with worried savers keeping their money at home, to be safe from the HMRC’s reach.

The ICAEW has also warned that the plans may simply encourage people to move their funds offshore.

“Those who intend to avoid paying tax can – once they know that direct recovery of debts is an option – easily side-step it by taking their funds out of their UK bank accounts. HMRC does not explain how it would counteract this simple and obvious strategy,” it warns.

At IBB Solicitors we advise on all aspects of UK taxation with emphasis on Inheritance Tax and Capital Gains Tax. We have an accountant within the team to enable us to provide a comprehensive service to our clients.

Contact IBB's experienced wills and trusts solicitors today to discuss your inheritance tax and estate planning issue. Call us today on 01494 790002 or email jacqueline.almond@ibblaw.co.uk