Direct recovery of debts: Has HMRC’s key objectives been met?
Brian Palmer, tax policy advisor for the AAT, reviews the success of HMRC’s power to recover established debts directly from debtors’ bank and building society accounts.
In the current climate this might sound highly unusual, but the direct recovery of debts (DRD) ruling came into force following a well thought through and conducted period of consultation and stakeholder engagement.
With its implementation in November 2015 came a widening of HMRC’s power to recover established debts directly from debtors’ bank and building society accounts.
When announced at Budget 2014, ministers agreed HMRC would provide Parliament with a full review of DRD after the policy had been operational for two years. Last Tuesday (16 April), this review duly arrived, covering the period April 2016 - December 2018.
The report considers whether, under DRD, HMRC’s key policy objectives of reducing tax debt by securing payment in full, ensuring a fairer tax system and providing better value for money have been achieved.
DRD’s core components:
- DRD is only undertaken if the debtor has an estimated deposit of £5,000 after payments are deducted.
- If no payment is secured, the debtor receives a visit, with the agent completing an assessment of vulnerability.
- If the debtor is deemed to be vulnerable, DRD action ceases.
- The debtor’s bank is asked to confirm the available deposits.
- If the available deposits are under £5,000, DRD action ceases.
- If the available deposit is above £5,000, the debtor is notified of a “hold” on their account.
- In turn, the debtor can lodge an objection or appeal to the courts.
- The debtor is notified of HMRC’s intention to deduct payment.
- If after 30 days, no objection or appeal has been made, the tax due will be taken from the account.
The HMRC review focused on the following elements:
- Effectiveness of intervention in collecting tax debt payments
- Impact on debtors targeted by DRD action, including supporting vulnerable customer
- £178m of outstanding tax debt has been successfully collected.
- The vast majority was collected before the face-to-face visits, but after other attempts at recovery by HMRC.
- In all, there were 22,667 cases over the period under report, with 42 vulnerable customers identified.
- A total of 42 vulnerable taxpayers were identified through the DRD process.
- 29 taxpayers were identified as vulnerable through face to face visits.
- A further 13 vulnerable customers were identified through telephone contact before the face to face visit or in instances of no contact.
Because only 42 vulnerable taxpayers have been identified does not mean that HMRC has successfully mitigated against regarding vulnerable customers. Sure, the real test of that would be how many did have it applied who failed to be identified? This is an almost impossible thing to measure.
During the period under review, eight debtors lodged objections, while three took further action by applying to the county courts.
Of the three appeals lodged with the county courts:
- One resulted in the cancellation of DRD action and the debtor being repaid the payment deducted.
- In another, the debtor agreed to pay the outstanding tax debt owed.
- In the third, the county court did not uphold the appeal.
HMRC amended its process by adding an extra three working days for the debtor to receive the letter before taking DRD action to address the issue highlighted in the first appeal.
In addition to the formal objections and appeals processes, debtors may complain about HMRC’s actions under DRD in the same way as about any other HMRC action.
HMRC received six complaints from debtors:
- Two disputed the debt
- Two concerned the hold notice placed on the debtor's account.
- One concerned the tone of the letter.
- One complaint was about the deduction notice applied.
None of these complaints were upheld by the internal Debt Management Complaints team, which is independent of the DRD team.
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HMRC believes that the intervention has met its policy objectives in that it has been effective in ensuring the government is paid what it is owed and has helped to reduce the unfair advantage these debtors have over those who pay on time.
HMRC said: “The low population identified confirms that current practices, including existing upstream debt management processes, have successfully mitigated against DRD action being used on customers who may be vulnerable.”
AAT is unaware of anyone being affected by DRD, which surely has to be a good sign.
Brian is Tax Policy Adviser for the AAT (Association of Accounting Technicians) and CEO of Tax Policy Advice. He has considerable all-round experience of the UK tax system, gained from the unique perspective of being an agent in the field and a tax policy adviser.
Experienced in providing guidance on consultation documents as a tax policy...