HMRC is set to gain powers to collect tax debts directly from taxpayers’ bank accounts under the Direct Recovery of Debts (DRD) rules, from Royal Assent of Finance (No 2) Act 2015. This is likely to be late September or early October 2015.
The legislation to implement DRD was published as Schedule 8 to the Summer Finance Bill 2015 on 15 July 2015. But in spite of promises of safeguards made by David Gauke, Financial secretary to the Treasury, and HMRC, those safeguards are not included in the legislation.
The DRD rules will work like this:
HMRC must have established a debt is owned by the taxpayer to HMRC of at least £1,000, and there is no prospect of that amount being reduced on appeal. This debt can include: any tax, penalties, interest and amounts demanded by an Accelerated Payment Notice (APN), as well as overpaid Tax Credits.
HMRC have said they will contact the taxpayer at least four times about the debt before commencing the DRD procedure. One of those occasions will be a face to face meeting with the taxpayer to establish that they have found the right debtor and calculated the debt correctly. This should avoid the situation where the HMRC letters have failed to arrive, or the taxpayer has not understood the liability.
However, although the promise of a face to face meeting is repeated in the explanatory notes to the Summer Finance Bill 2015, it’s not included in the law or in the DRD regulations. That means the promise has no substance - it can’t be enforced by a court and it will be entirely dependent on HMRC’s discretion.
HMRC will send the bank (the deposit taker) an information notice which requires the bank to provide details of the accounts held by the taxpayer. The bank must supply the information within 10 working days. The taxpayer or their agent won’t be sent a copy of this notice, so will not know about this action unless and until the bank tells them.
HMRC sends the bank a hold notice which requires the bank to freeze the taxpayer’s account or accounts in respect of a specified amount. At least £5,000 must be left available to the taxpayer across all his accounts. The bank must confirm to HMRC whether the sum specified is in the taxpayer’s accounts, and provided other details about the affected accounts.
When HMRC receive this confirmation from the bank it must send the taxpayer a copy of the hold notice. The bank is also permitted to inform its customer (the taxpayer) at this point.
Objections and appeals
The taxpayer, or anyone with an affected joint account with the taxpayer, can lodge an objection with HMRC against the hold notice. HMRC must respond to the objection within 30 working days and either dismiss the objection, cancel or alter the hold notice.
Once HMRC has dealt with the objection the taxpayer can appeal against the hold notice to a County Court.
Once the period for objections and appeal against the hold notice has expired, HMRC will issue a deductions notice to the bank, requiring the bank to pay the required sum by a date specified. This notice must be copied to the taxpayer and to anyone who has an interest in the affected accounts.
There are penalties for banks who fail to comply with the notices issued by HMRC.
How will this affect your clients?
This legislation is supposed to target taxpayers won’t pay rather than those who can’t pay, but as DRD also covers people subject to APNs is very worrying.
An APN is a tax demand issued in respect of disputed tax, where that dispute has not been resolved by the courts. The APN can’t be appealed, and the tax is payable within 90 days of the issue date.
If you have other concerns about the DRD rules, please detail them below.
Rebecca Cave is the author of the Tax Advice Network practical tax weekly newsletter.