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Budget measure - Direct Recovery of Debts

Budget measure - Direct Recovery of Debts

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See Budget document, paragraph 2.203  – "The government will modernise and strengthen HMRC’s powers to recover tax and tax credit debts directly from debtors’ bank and building society accounts, including ISAs. The Direct Recovery of Debts will focus on debtors who owe at least £1,000 and have been contacted multiple times by HMRC to pay. A minimum aggregate balance of £5,000 will be left across all accounts, including ISAs, after the debt is recovered. The government will consult on the implementation of this measure shortly after Budget 2014."

Have you spotted this. It's one of those rolling reforms of HMRC powers that usually come around at this time of year, and will no doubt be subject to follow-up consultation. Has anyone heard the proposal before, or have experience of existing powers in this area? If not, what are your initial reactions?

Replies (30)

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Stepurhan
By stepurhan
19th Mar 2014 16:15

Safeguards

What safeguards are in place to check that the money is actually due in the first place?

In principle, if someone genuinely owes tax and has the funds to pay it, then granting HMRC the powers to ensure that tax is paid is a good thing.

Unfortunately, that relies on trusting HMRC to not abuse that power, and that I am less happy with. I can see this being used for taking tax on disputed assessments, or taking CT payments when HMRC actually owes more in CIS which is held up in "checks".

So any safeguards would have to be extremely robust to prevent this. I doubt that they will be willing to put in safeguards that would be strong enough for my liking (preferring to rely on telling us to trust a government department that has not proved worthy of such trust) so I am against this. Please let us know when consultation happens so we can ensure our voices are heard on this.

 

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By Mathswizard
19th Mar 2014 16:52

This is worrying

as there are no checks in place to ensure tax is actually due.  What if a business has an overdraft that is not being used, HMRC could, in effect, take that business into an overdraft position with the resultant overdraft fees and interest having to be met.  I understand the need to collect what is due, but there must be proper systems in place.  How does a third party gain access to a bank account in any event ?  What about client accounts, or, as is the case with some of my clients, reserve accounts, where they are transferring percentages across to prepare for VAT or income tax due ?

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By BKD
19th Mar 2014 17:05

Overdraft?

The proposal is that at least £5k will be left across all accounts. I doubt very much whether HMRC could ever obtain powers to directly utilise a taxpayer's overdraft facility (perhaps they'll be able to apply for a loan - from RBS - on the taxpayer's behalf?).

And we're told that the measure will be applied only where the taxpayer has been contacted several times (possibly with the focus primarily on those that refuse to answer). And presumably the liabilities pursued will be self-assessed liabilities, so I'm not sure what checks will be required to ensure that the tax is due (but totally agree that there must be some form of control to ensure that only tax that is legally due - after offset of all liabilities due by HMRC to the taxpayer - is collected).

I don't think there is any point in getting hot under the collar until we've seen the detailed consultation.

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Sarah Douglas - HouseTree Business Ltd
By sarah douglas
19th Mar 2014 17:40

Perhaps it is time to go back to Cash

I am sort of joking here but surely this will just encourage companies not to bank and deal more in cash, pay suppliers in cash and accept payment in Cash. 

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By ireallyshouldknowthisbut
19th Mar 2014 17:50

.

This raises a lot of questions about the circumstances in which it can be used.

It would be nice to see companies not just *poof* into the night with the directors running away with the loot, but at the same time I know from helping out companies who are borderline bankrupt but trying everything to stay in there and keep the jobs alive that having HMRC come raid the bank account on wages day could be be a "lights out and we all go home" moment. 

Tricky stuff. 

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Replying to michaelblake:
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By Old Greying Accountant
20th Mar 2014 13:58

Agree entirely ...

ireallyshouldknowthisbut wrote:

This raises a lot of questions about the circumstances in which it can be used.

It would be nice to see companies not just *poof* into the night with the directors running away with the loot, but at the same time I know from helping out companies who are borderline bankrupt but trying everything to stay in there and keep the jobs alive that having HMRC come raid the bank account on wages day could be be a "lights out and we all go home" moment. 

Tricky stuff. 

... you can't just focus on tax debt, more robbing Peter to pay Paul.

Wow, company owes £50k but hit a bad patch, HMRC come along clear out the bank accounts so employees can't be paid, suppliers can't be paid, company goes [***] up, 40 people on the benefits payroll, when in three months time the company's accounts would have shown a loss which carried back would extinguish the £50k tax bill!

In theory great sound bite, in practice it needs good safeguards to avoid human rights breaches and in my view should need court approval with the tax payer having right of representation.

And to answer John, yes I had heard the idea mooted on a CPD course in the last year or so.

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Replying to lionofludesch:
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By BananaMan
20th Mar 2014 12:08

Losses?

Old Greying Accountant wrote:

Wow, company owes £50k but hit a bad patch, HMRC come along clear out the bank accounts so employees can't be paid, suppliers can't be paid, company goes [***] up, 40 people on the benefits payroll, when in three months time the company's accounts would have shown a loss which carried back would extinguish the £50k tax bill!

 

The fact that the losses are there and would instigate a repayment if carried back does not mean the company should not have paid its tax when due 12 months earlier. In any case, a carry back claim is optional isn't it?

 

Don't get me wrong, I don't agree with the 'new' power - however I do agree that (after all LEGAL means of reduction(/avoidance)) we should pay what is due when it is due.

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Replying to Gone Sailing:
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By Old Greying Accountant
20th Mar 2014 14:11

12 months? , Except ....

BananaMan wrote:

Old Greying Accountant wrote:

Wow, company owes £50k but hit a bad patch, HMRC come along clear out the bank accounts so employees can't be paid, suppliers can't be paid, company goes [***] up, 40 people on the benefits payroll, when in three months time the company's accounts would have shown a loss which carried back would extinguish the £50k tax bill!

 

The fact that the losses are there and would instigate a repayment if carried back does not mean the company should not have paid its tax when due 12 months earlier. In any case, a carry back claim is optional isn't it?

 

Don't get me wrong, I don't agree with the 'new' power - however I do agree that (after all LEGAL means of reduction(/avoidance)) we should pay what is due when it is due.

.... it may only be due 3 months earlier, and the money put aside to pay it may have been needed to keep people in a job in the nine months between year end and tax due!

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Replying to atleastisoundknowledgable...:
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By BananaMan
20th Mar 2014 14:47

Assuming both are 12 month periods, it will definitely be due more than 3 months earlier - unless you are in the habit of preparing and filing the CT return exactly on the year end. I know I'm not.

 

The fact remains - using "we are assuming we have a refund due next year" as an excuse to not pay up isn't really that ethical is it.

 

Besides, how many directors do you know that can accurately calculate CT computations in a timely fashion in order to make the assessment that a repayment will be due?

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By Life in the old dog
19th Mar 2014 18:52

Not new powers as much as new power.

They already have these powers available to them in that a court can make an order to freeze a bank account etc. But, of course, that would require a court order, with the safeguards that implies, to exercise them. So, as I see this, it is a blatant attempt to shortcut the system and deny the alleged debtor the opportunity to be heard by a court that is independent of HMRC. 

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By Steve Kesby
19th Mar 2014 19:20

I can't see the banks going along with it

If the bank allow somebody to take money from my account without my authority and which isn't properly due... guess who owes me the money?

If you're not sure, ask the Financial Ombudsman.

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By cmiskin
19th Mar 2014 21:22

Estimated Amounts

There are lots of cases around where HMRC are pursuing determinations etc. where Self Employment ceased years ago, the taxpayer should long since have come out of Self Assessment and the amount being pursued is not the correct liability. I think it will cause a lot of panic amongst those on very low incomes who will get the message that HMRC can take money from their bank accounts but won't be aware that they would have to have significant (to those on low incomes) sums in those accounts for this to happen.

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By DMGbus
19th Mar 2014 23:02

Garnishee order (not new except to HMRC)

A debtor can, via due legal process, serve a garnishee order on a creditor's bank or a creditor's debtor.

The bank are then legally obliged to make payment to the debtor.

This is not new, rarely seen in practice and it seems now to be new to HMRC.

As already stated there is a danger that HMRC could misuse this process and attempt to collect liabilities not lawfully due.

 

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Replying to frankfx:
Stepurhan
By stepurhan
20th Mar 2014 08:02

The important words

DMGbus wrote:
A debtor can, via due legal process, serve a garnishee order on a creditor's bank or a creditor's debtor.
As DMGbus says, the ability to take money legally exists. But as the words I have highlighted show, there is a legal process to do so. It sounds like this new power of HMRC's is to short-circuit that legal process. That is rarely a good thing.
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By The Innkeeper
20th Mar 2014 01:51

And what about
A business that holds client monies.. What would happen if the. Business has large funds on client account but not enough in office would hmrc come along not realise that client funds are jnot the businesses how long would it take for funds to be returned. I suspect that as day follows night this will happen who will pay for the costs of sorting the mess out. Hmrc.

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By The Minion
20th Mar 2014 10:56

Am i paranoid...

When you combine this with the proposed catch up with DOTAS/GAAR tax liabilities it seems to be an end of the world scenario...

It seems too complex a set of pitfalls here, how does it work if the accounts are joint accounts and the tax is only due by one of the account holders?

How does the taxman even begin to source all accounts?

Where does the "Net £5,000 across all accounts" fit with an offset mortgage account for example?

Is this a whole new marketing opportunity i see before me, building defences against "unauthorised withdrawals"?

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Replying to DJKL:
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By Old Greying Accountant
20th Mar 2014 14:12

Personally ...

The Minion wrote:

When you combine this with the proposed catch up with DOTAS/GAAR tax liabilities it seems to be an end of the world scenario...

It seems too complex a set of pitfalls here, how does it work if the accounts are joint accounts and the tax is only due by one of the account holders?

How does the taxman even begin to source all accounts?

Where does the "Net £5,000 across all accounts" fit with an offset mortgage account for example?

Is this a whole new marketing opportunity i see before me, building defences against "unauthorised withdrawals"?

... I think the DOTAS prepay is an excellent idea, although it should be paid to escrow, not HMRC.

I don't think this is, as I said above, government is big picture, if it is targetted at wilful non-payers is one thing, but the overall impact of effectively closing down a business but starving it of working capital is likely to cost more long-term than the tax collected, regardless of the legal and moral rights and wrongs of being able to do so.

According to Nicky Morgan MP and Economic Secretary to the Treasury, at least nine attempts to collect must have been nmade before these powers can be used, but as someone pointed out it is hard to answer a letter from HMRC when they don't put any contact details on it!

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By bduncan
20th Mar 2014 11:48

Unworkable

HMRC not a priority creditor so have no higher rights to a company's or individuals money than any other creditor. Until their priority creditor status is reinstated then this is unworkable.

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By Robertnz
20th Mar 2014 12:49

Fair is Fair

I agree that tax payers who genuinely owe should be made to pay. And any reasonable means to enforce collection should be used.

But what about the other side of things - massive delays in getting CIS refunds due, excessive payments on account recovery?? Can we have a legal right to take funds directly from HMRC bank accounts? NOT A CHANCE!!

As an example, we have a client who is owed a refund of over £7,000 and we have been trying to obtain this for over 3 months. All we get from the Agent "Helpline?" is that the refund is being delayed because of "Security Checks". The refund is due purely due to payments on account being significantly in excess of the tax owed. All taxes have been paid up to date.

The issue of tax collection is, with the advent of electronic filing, centralised postal handling etc., simply putting more and more delays on refunds being processed. As far as I am concerned, this is a deliberate tactic of HMRC to improve their cash flow in this budget deficit era. And writing a complaint does not help - you do not get a response for 4-6 weeks, and the responses generally are a bunch of waffling and excuses, without a hint of an apology, even when the clients (such as small subcontractors under CIS) are experiencing genuine hardship as a result of these delays.

 

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By Roy Prockter
20th Mar 2014 13:00

And when the boot is on the other foot

Will we be granted the right to take our CIS refunds from HMRC's bank account when they have been contacted multiple times but failed to respond.

Thought not

One client has withheld CT and VAT to the value of the CIS still unrepaid since April 2013 - no doubt the new idea is that HMRC sit on the CIS and then deduct CT and VAT from bank accounts - so breaking the business cash flow but no doubt reaching the targets set.

The idea might make sense if HMRC were really a single organization, but not until!

 

 

 

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By Old Greying Accountant
21st Mar 2014 00:06

Quite a few ...

... Freeagent works tax out on a day by day basis and you know your profit/loss after tax instantly, Paul Scholes will agree it is pretty accurate, but most would certainly know if they were on course for a large loss at the year end, you certainly wouldn't wait until month 9 to calculate if your thought you had a carry back claim, but you would quite likely not file the CT600 until month 12, so easily feasibly you could file X1 CT6000 only 4-5 weeks before filing X2, no one with a brain would file a CT600 before the last day to avoid a penalty if they know that would trigger HMRC hounding them for payment, knowing they couldn't pay due to a subsequent downturn - I would even consider filing the CT600 late as the fine may be the lesser evil!

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Replying to DJKL:
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By BananaMan
21st Mar 2014 11:15

Arrears

Old Greying Accountant wrote:

... Freeagent works tax out on a day by day basis and you know your profit/loss after tax instantly, Paul Scholes will agree it is pretty accurate, but most would certainly know if they were on course for a large loss at the year end, you certainly wouldn't wait until month 9 to calculate if your thought you had a carry back claim, but you would quite likely not file the CT600 until month 12, so easily feasibly you could file X1 CT6000 only 4-5 weeks before filing X2, no one with a brain would file a CT600 before the last day to avoid a penalty if they know that would trigger HMRC hounding them for payment, knowing they couldn't pay due to a subsequent downturn - I would even consider filing the CT600 late as the fine may be the lesser evil!

 

I do appreciate your view and I have actually used the HMRC post delay to a similar end - instigating written correspondence in order to gain an extra ~2 months to make payment.

 

I still maintain that the statutory requirement is pay what is due when it's due. That being said mitigating circumstances crop up everywhere and forcing a company into liquidation may cost more to the Taxpayer than the CT that was lost!

 

I guess if they were in PAYE & VAT & CT arrears etc it would be a different story - only time will tell as to how disruptive this 'Power' will become

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By njpandya
20th Mar 2014 20:03

Advance Tax

This power will be watched very carefully by HMRC & Clients. Far too early to jump at the conclusions because no about given the HMRC track record of services this concern is but natural but these power will be applied in the strictest sense after evaluating all options.

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Replying to Agutter Accounts:
Stepurhan
By stepurhan
21st Mar 2014 07:46

Optimistic view

njpandya wrote:
This power will be watched very carefully by HMRC & Clients. Far too early to jump at the conclusions because no about given the HMRC track record of services this concern is but natural but these power will be applied in the strictest sense after evaluating all options.
For someone telling us not to jump to conclusions, you seem very certain that the power will only be used in extremis. I wish I shared your optimism. Hopefully the detail in the proposal will go some way to allaying our fears.
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By docwil
21st Mar 2014 09:32

ABUSE OF POWER

Not the same but the principle is.

We had a final demand from our Local Authority for unpaid Council Tax for our former home which went to Sheriff Officers (Scotland) for execution. We disputed this as it was not due as we were paying monthly & were not in arrears but the monies were taken out of my wife's bank account (about£1200) despite me contacting the Council, the Court, the Sheriff Officers & our bank. No replies from any of them. 

About 10 months later we received a refund in full, but no interest on the amount or apology from anyone.

Give a statutory authority a power & it will be abused.

 

Regards,

 

Will.

 

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By robblay
21st Mar 2014 19:00

Government Thugs

So the Tories create HMRC thugs, just like their DVLA tow truck thugs that I saw taking a disabled woman's car when she was away!  Despite her neighbour's protests.

In 2015 if you want to pay less tax vote UKIP.

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By the_Poacher
22nd Mar 2014 18:07

Pay up or contact HMRC
Those of us on PAYE don't have the luxury of delaying our tax payments to help with our cash flow and some of us have developed limited sympathies with businesses that don't pay their share on time. If you don't owe the money then write to HMRC and if you ha advent heard from them within a month involve your local MP

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Replying to ireallyshouldknowthisbut:
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By Life in the old dog
22nd Mar 2014 18:31

-

the_Poacher wrote:
Those of us on PAYE don't have the luxury of delaying our tax payments to help with our cash flow and some of us have developed limited sympathies with businesses that don't pay their share on time. If you don't owe the money then write to HMRC and if you ha advent heard from them within a month involve your local MP
  There's a comment from someone who obviously has no concept of how often HMRC get it wrong, and how impossible they are to contact.
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Replying to mr. mischief:
Stepurhan
By stepurhan
28th Mar 2014 08:42

An ill-judged stance

Life in the old dog wrote:
the_Poacher wrote:
Those of us on PAYE don't have the luxury of delaying our tax payments to help with our cash flow and some of us have developed limited sympathies with businesses that don't pay their share on time. If you don't owe the money then write to HMRC and if you ha advent heard from them within a month involve your local MP
  There's a comment from someone who obviously has no concept of how often HMRC get it wrong, and how impossible they are to contact.
Someone under PAYE pays tax on money as they earn it, and really does have no way of delaying that. A company does not have to pay its tax until 9 months after its year end. Subject to payments on account, a self-employed person does not have to pay tax until 10 months after the end of the tax year. Even with payments on account, they don't have to pay half their tax until 4 months after the end of the tax year. So companies and the self-employed are paying their tax much later than those on PAYE in all cases. Also don't forget this is time after the year end, so most of that income will have been received even earlier.

There is also the matter that HMRC get tax codes wrong as well, so people under PAYE are not somehow immune to HMRC [***]-ups anyway.

This doesn't make HMRC being able to take money from bank accounts right, nor does it forgive the mistakes they made. But, on tax legitimately due, companies and the self-employed are still way better off in cash-flow terms than those under PAYE. When they stretch that advantage by not even meeting their much delayed due dates, then I think the_Poacher has every right to feel aggrieved at those not meeting their genuine tax liabilities as they fall due.

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By BKD
28th Mar 2014 11:05

Falling on deaf ears, Stepurhan

It seems that there wasn't much life left in the old dog after all ;¬)

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