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Tax debts: HMRC denies sidestepping the courts

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16th Oct 2014
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An increasing focus on HMRC powers of enforcement “without third party supervision” is undermining the ability of taxpayers with a genuine dispute to stand up to the tax authority, according to Chartered Institute of Taxation president Anne Fairpo.

There can be no dispute that HMRC needs to enforce tax debts, Fairpo told CIOT members attending the annual president’s reception this week. “In a perfect world no-one would need the courts, but people make mistakes and HMRC makes mistakes,” she said.

“In this imperfect world, direct recovery of debts (DRD), strict liability for innocent failure to declare overseas income and gains, and follower notices – with a 50% penalty if you persist with your right to have your case heard in the courts and lose, with an accelerated payment notice also served on you – all undermine the ability of a taxpayer with a genuine dispute to stand up to HMRC.”

Fairpo, a tax barrister, added: “Sidestepping the courts to benefit the state alone is missing the opportunity to enable business to work better in general.”

Direct recovery of debts

A consultation on DRD closed in July. Last week ICAEW chief executive Michael Izza urged accountants to sign a petition calling on the government to withdraw the DRD proposals.

The petition, created by Taxation editor Mike Truman, has attracted more than 3,400 signatures. A petition that reaches 100,000 signatures is eligible for a debate in the House of Commons.

An early day motion tabled in July, calling on the government to abandon the plans, has been signed by 37 MPs.

Izza wrote: “It’s not just [ICAEW]. CIOT, ATT, AAT, ACCA, FSB, Forum for Private Business and others have expressed concern about raiding somebody’s account before a court case. If this is permitted for HMRC, which other government departments will ask for the same right?”

HMRC is under-resourced and makes mistakes as a result, he added.

Writing in this month’s issue of Tax Adviser, the CIOT journal, Fairpo noted that HMRC already has the power to take money from bank accounts. “It just needs to convince a court that it should be able to do so … If there is something genuinely broken with the court enforcement system for debts, why not fix that problem – for the benefit of everyone – rather than sidestepping it with special rules for government?

But an HMRC spokesman told AccountingWEB that judicial oversight was “key to the proposed design of this policy”.

“Debtors will have several means of contesting the use of DRD and appeal rights will be built in to the process. Taxpayers can appeal to the independent First-tier Tax Tribunal on the amount of tax due or legal basis of the liability,” he said.

“When DRD is applied, debtors will have a further window to object before any funds are transferred to HMRC. They will then have a further right to appeal to the courts. We have been consulting on a model that works best for those affected and the courts system.”

HMRC’s consultation document said a debtor will have been contacted at least four times, and typically around nine times, before getting to the stage where DRD is applied. “The debtor will be able to appeal [against] the use of DRD,” it said.

“No money will be taken until the debtor is notified; once the debtor has been notified, no money will be taken until [14 days later]; during this period the debtor has the right to object to HMRC or provide evidence of hardship; and if the debtor objects and HMRC does not uphold the debtor’s objection, [the debtor] will continue to have the right to judicial appeal on the use of DRD.”

The paper pointed out that HMRC has wide experience of taking control of debtors’ goods without needing to apply to the courts first. Distraint “is a summary and immediate remedy which does not require the sanction of a court and is the department’s preferred enforcement route,” HMRC’s Debt Management and Banking Manual says.

Follower notices

The combination of a follower notice and an accelerated payment notice was what Fairpo found “particularly worrying”.

She wrote in Tax Adviser: “A follower notice basically requires the taxpayer to ‘give in now’ or to face a penalty if they decide to continue to appeal the tax – and there is no right of appeal to the courts (other than possibly by judicial review, which is not as accessible as the tax tribunals).

“If HMRC issue a follower notice, then they can also issue an accelerated payment notice – so that even if you decide to risk the penalty and go on with the appeal, HMRC will be able to override the usual postponement of tax. Again, there’s no right of appeal to the courts (other than possibly through judicial review, again).”

Fairpo argued that HMRC could “unilaterally decide to issue a follower notice to shut down an appeal and then unilaterally demand immediate payment of the tax they think is due – effectively overriding any judicial process open to the taxpayer in that dispute.”

HMRC told AccountingWEB that follower notices “remove the cash-flow advantage for avoidance scheme users who hold on to the disputed tax whilst their case is being challenged”.

The spokesman said: “Some choose to continue litigating their case even where the same scheme or one very similar has already been defeated in the courts, dragging the process out for many years. The new legislation means that they will need to pay up front the disputed tax and, if they continue to dispute their case, face a penalty. Taxpayers will continue to have the right to argue to the tribunal that their case is different from the lead case and retain full right of appeal against the penalty.”

Fairpo had warned that “removing the courts from the tax process, turning HMRC into judge as well as prosecutor, is bordering on an abuse of power”.

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Replies (13)

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By Moonbeam
17th Oct 2014 11:28

I've no confidence whatsover in HMRC

Giving HMRC more powers just means some unfortunate honest business people are going to be caned unnecessarily. The big bad boys will be allowed to get away with it because they are more frightening to deal with and they have worked out more options to hide behind.

No attention is given to the accountancy profession's continued representations about the effect of the mismanagement of HMRC. This is supposed to be a democracy, but it's gradually becoming an unmanaged bureaucratic nightmare with no real powers of complaint for the citizen.

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By jonnieboy
17th Oct 2014 11:30

APN under DOTAS
What surprised and concerned me is the changes allowing for an APN to be used for an agreement disclosed under DOTAS - it seems that the DOTAS scheme is being twisted into something it was not intended for. The end result will be to push avoidance schemes underground, finding reasons not to declare.

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By posty133
17th Oct 2014 11:45

Petition Link

Is there any chance of a link to this petition being made available to other professional institutions?

 

 

 

 

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Andrew Goodall
By Andrew Goodall
17th Oct 2014 11:53

Petition

I've added a link to the petition in the news story.

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By carnmores
17th Oct 2014 13:12

on this years tax return you cannot side step the question of

a bank account , you either have to say you have no bank account or you have to give them detail and thats even if you arent entitled to a refund, we all no where this underhand approach is going

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By Casterbridge Hardy LLP
17th Oct 2014 15:31

BIG BROTHER

In my opinion a lot of these unhelpful changes in legislation are nothing more than an expedient method of compensating for the increasingly poor standard H M Revenue and Customs staff.  I do not believe that this trend is likely to reverse at any time soon.

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By Dug
17th Oct 2014 16:48

DRD Petition

For a wider circulation of the petition I suggest that (if acceptable) the 38 degrees.org have a record of rapidly obtaining large numbers of signatures and therefore could be a useful avenue towards achieving the 100,000 signature target.

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By Alison Wunderland
17th Oct 2014 17:39

DRD Direct Recovery of Debts,
Many years ago I was subjected to bullying tactics by HMRC when they decided to claim £10,000 tax, which they claimed was owed on earnings I was supposed to have got. My argument that the claim was a figment of the imagination of the revenue officers cut no ice. I was supposed to prove that I had not earned an amount to justify the tax. How do you prove a negative? My investigations revealed that my National Insurance number that I had all my life was not mine but was registered to a woman in South Wales. So my argument to the tax commissioners was this; how did the revenue decide on tax I owed when they had no idea who I was? The commissioners told the 2 officers to sort out the problem and send a report to the commissioners and a copy to myself. The 2 officers were forced to come to my home six times on consecutive Saturday mornings and still they never sorted it out and never sent me a report and, as far as I am aware, they never sent a report to the commissioners. One of the officers was transferred from Grantham to Wick, the most northerly tax area office, think of that what you will. The problem with DRD as I see it, the revenue can claim any amount of tax they dream up and it is up to the tax payer to prove they do not owe it, too late when they bankrupt the taxpayer and take their property.

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By carolelmcarre
18th Oct 2014 09:00

Hmrc debt recovery would be a joke if it were not so serious. I have a client who has paid every bill as soon as he receives it, being chased by a debt recovery agent, Rossendales, for a debt which was on his account for a couple of weeks relating to an erroneous 2012-13 return that he had filled in himself and has by mistake tickled the box saying he did not need to pay NICS. Rossendales threaten bailiffs, I write to hmrc and Rossendales showing the outstanding amount is £ 12 interest, hmrc confirm it is, Rossendales confirm I have authority to deal with the case and invite me to spend hours talking to them! We accountants are increasingly having to spend hours dealing with hmrc errors and these seem to be targeted at SME's.

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By AndrewV12
18th Oct 2014 10:47

Its the little guy that cops it.

I feel sorry for the little guy who gets dragged through the mill, whilst the big firms ride rough shot over any legislation.  

 

 

Extract Daily mail 

What IS the taxman doing? Despite outrage at big firms not paying their way the amount of uncollected tax rises to £35BILLION

Read more: http://www.dailymail.co.uk/news/article-2454179/Amount-uncollected-tax-rises-35BILLION.html#ixzz3GUKjLsa1 
Follow us: @MailOnline on Twitter | DailyMail on Facebook

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By tcatt31489
19th Oct 2014 21:06

It is the Court System which is the undelying problem.

By stopping using the County Court collect debts - First the Child support Agency and now HMRC- the Government is admitting the Court system is not fit for purpose. Having tried myself to collect debts via the County Court and failed due the delays, failures in the system and general desire to help the little man being persued by 'big business' I do not blame the Government trying other means. However would it not be better to improve the Courts for everyone's benefit rather than give the Government their own debt collection system?

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By johnjenkins
20th Oct 2014 10:45

The main problem

with all this is that technology is increasing so information coming out is increasing. as there are no bodies to deal with it, shortcuts are the "soup of the day". As HMRC are not preferential creditors I cannot see how DRD can be legal - oh that's right HMRC can side step legalities (IR35 being one in particular). Now what happens if the banks have a LEGAL hold over the bank account? I presume HMRC comes first (I'm referring to insolvencies etc.). Can the bank (if they know there are financial problems) say no way? The reason why I'm saying this is because we all know that DRD won't be restricted, it will end up in a free for all. So internet currency could be the future.

As for the £35B uncollected taxes. How much of that is penalties and assessments that are erroneous?

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By BRIGHTAMEDODAH
21st Oct 2014 20:52

HMRC is the problem

HMRC should not be allowed to be the judge and the prosecutor. HMRC makes lot of mistakes even in allocating the payments. Payments made electronically are constantly been allocated to the wrong accounts and being chased for non-payment. The DMB is there to collect as much as possible may it be the incorrect assessment or allocations errors or not. Joe the public could not afford to go through the Tribunal system and is very scared of it. As for the debts to be recovered how much of it is incorrect penalties, assessments and surcharges?

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