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New HMRC powers promote offshore banking?

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5th Jul 2007
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HMRC is pressing to the max in the latest part of its consultation on Powers, Safeguards and Deterrents, Payments, repayments and debt: the developing programme of work; it is now seeking powers to seize the contents of individuals’ bank accounts and other assets without the safeguard of court approval. This comes hot on the heels of the previous consultation which is aiming for powers to search premises (including homes) without a warrant.

Keeping to a policy which apparently means that all of its powers and compliance needs are focused on combating the actions of a tiny minority of taxpayers, HMRC says that its new approach will be “fair” and “proportional”. The vast majority of taxpayers and their agents may be forgiven for finding this approach extraordinary however, and the minority of tax evaders, to whom these powers are aimed, seem hardly likely to park their assets in the UK when such measures are in place.

In fact, if the essential safeguard of the courts is removed, then it seems the most taxpayers will sleep better at night by keeping all their savings abroad too, just for peace of mind it creates. It will presumably be highly costly and time consuming to challenge HMRC if they have wrongly seized your assets.

Other measures which HMRC is currently considering in recovering tax debts include:

  • Direct attachment of any of a taxpayers’ assets without prior court approval or safeguard (this will give them the right to enter your house and then take it from you!).
  • Flexible payment of tax debt: Taxpayers will be able to use credit cards to pay tax debt (HMRC apparently forgoing interest on debts, leaving this to swell the coffers of the credit card companies instead)
  • Removing inconsistencies in enforcement powers between the taxes
  • Offsetting tax repayments against debts of another tax – “A single power of distraint” which might mean that child credits are offset against tax debt, for instance.
  • Issuing Tax Clearance certificates to compliant business, an idea which appears to mean an extra layer of red tape in addition to obligations under self assessment
  • Rights to tracing missing taxpayers by contacting 3rd parties
  • Automatic debt collection via PAYE.
  • Awarding of costs to HMRC in debt litigation

The Chartered Institute of Taxation (CIOT) has already expressed its concerns over these latest proposals, unusually, in the form of an open letter to HMRC from its new President Rob Ellerby as follows:

Sir, Following on from HM Revenue & Customs (HMRC) consultation document 'Payment, Repayment and Debt', there has been a great deal of interest and concern over the proposed powers that could be given to HMRC to obtain unpaid tax revenue.

The Chartered Institute of Taxation (CIOT) will submit its response to this document in due course.

This is the beginning of the consultation process and HMRC have set out options to be considered. It is understandable that they are examining their current powers and that, where liability is very clearly established, options such as direct access to bank accounts are considered.

There are serious issues that need to be addressed. For example, if someone has a joint bank account, what redress does the 'innocent party' in the relationship have? Furthermore, what happens where HMRC and the taxpayer do not agree whether anything is owing and the issue is being handled properly through existing channels? These are the sorts of issues that we will seek to explore in consultation.

If HMRC are to gain or extend their powers, the CIOT will demand that safeguards exist for the taxpayer. We have long argued for a Taxpayers' Charter setting out rights and responsibilities.

Finally, I would like to add that the CIOT is very supportive of HMRC consulting on this crucial issue.

Tax Editorial comment on the consultation
HMRC say. “It is then only fair that the minority who do not pay on time are pursued promptly for what they owe”, which sounds fine on the face of it, but observers may remark too that unchecked power corrupts and lends itself readily to abuse. Ongoing problems with the current system are only going to get worse as HMRC cuts more staff, and training issues mean that judgment is not always exercised as carefully as it might. Waving a Taxpayer’s Charter of Bill of Rights in the air is not going to help you if you are the victim of a mis-carriage of justice in respect of these proposals, and minority who HMRC are aiming to catch are not going to stick around and wait for their assets to be seized in any case.

HMRC provide a breakdown of taxes owed at 31st March 2006 annexed to this consultation (£bn)
- Income tax 6.3
- NIC 3.1
- Companies 1.2
- Overpaid credits and benefits 3.8
- VAT and Excise 5.5
- IHT .7
- Other taxes and duties 1.3
- Total 21.9

Payments, repayments and debt: the developing programme of work
Issue date of consultation: 25 June 2007
Date of response: 17 September 2007

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Replies (4)

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By AnonymousUser
06th Jul 2007 09:36

Order of creditors
Am I right in thinking that the power to take money direct from bank accounts would permit HMRC to leapfrog the order of creditors. My understanding is they are no longer preferential creditors for the maintsream taxes. A business close to insolvency could have to cease trading if any creditor was arbitrarily able to remove money from its accounts. HMRC might come away paid fully or in part prejudicing or eliminating the entitlements of other creditors. Perhaps also leaving totally innocent customers who have paid for goods with orders that are not fulfilled, a threat to every citizen of the country. If so it is in everyone's interests that this proposal is implacably opposed by everyone who values the human rights of the citizen against the oppression of the state.

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By Crassus
10th Jul 2007 18:55

In the unlikely event . . .
What bothers me is that, of course in very rare instances, HMRC have been known to make mistakes. For example, the old HMCE once attempted to distrain my household effects, for VAT that was not due for a further three weeks (I had made the mistake of filing my VAT Return early). And I am still waiting for an apology twelve years later.

What happens if HMRC erroneously freezes a trader's account for a tax debt that is not in fact due? If other payments then failed, the trader's credit rating could be destroyed overnight.

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By User deleted
06th Jul 2007 12:34

Revenue Powers
I absolutely agree with the last two contributors but don't believe that cash offshore is safe from the Revenue. We have a client who has allegedly had £13,000 seized from a bank account in Portugal by the Portuguese Revenue on behalf of HMRC in respect of tax allegedly owed in the UK!

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By AnonymousUser
06th Jul 2007 15:13

Level Playing Field
Presumably HMRC will not object if equivalent powers are given to taxpayers to facillitate refunds due to them and witheld for no reason !

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