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HMRC’s hands in your bank account

16th Jul 2015
hmrc

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:

Established debt

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. 

Information notice

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. 

Hold notice

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.

Deductions notice

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. 

Penalties

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.

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Replies (41)

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By 0098087
16th Jul 2015 15:36

So, come on. Who voted for this bunch of clowns? Come on..surely with this and the dividend tax you must realise that the government is no friend of small business.  Ed Milibands 1% increase for large companies in CT rates and business rate relief is looking pretty good now huh.

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By johncharles
17th Jul 2015 08:57

Big Brother

is now not just looking at you but is going to be dipping into your pocket just like a thief!

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By mikefleming3028
17th Jul 2015 10:37

what the Dickens!!!

Just finished re-reading Olive Twist and could not help but notice that there are some disturbing parallels between this Chancellor and The Artful Dodger. The Statutory Instrument however limits the Territorial Extent of its application to England, Wales and Northern Ireland. Could  this result in a stampede of bank accounts across the Scottish border?       

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By leon0001
17th Jul 2015 14:59

Unreliable HMRC

The real problems will arise when HMRC and/or the banks think that a bank account belongs to the recalcitrant taxpayer but it actually belongs to someone else, perhaps with a similar name. The first that the innocent person will know about this is when they discover their account has been frozen. I am afraid that HMRC in its present state cannot be relied on not to make such mistakes.

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By johncharles
17th Jul 2015 17:45

They are already in chaos

leon0001 wrote:

The real problems will arise when HMRC and/or the banks think that a bank account belongs to the recalcitrant taxpayer but it actually belongs to someone else, perhaps with a similar name. The first that the innocent person will know about this is when they discover their account has been frozen. I am afraid that HMRC in its present state cannot be relied on not to make such mistakes.


 and it is going to end up, if they carry out this, millions of pounds compensation claims to be found out of taxpayer's funds. Literally they couldn't really have thought this one out.
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By janefg
20th Jul 2015 11:49

Is there anything in the legislation about compensation for the taxpayer if HMRC get it wrong?

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By KWest
19th Jul 2015 10:51

Not Thought Through.

HMRC's recent history shows that the potential for errors here is enormous. Quite apart from the cost of any compensation there will be equally burdensome additional costs to the tax payer of HMRC staff working to address claims and remedy errors. The sort of thinking that has resulted in bringing this nonsense forward belongs to another more autocratic age.

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Chris M
By mr. mischief
19th Jul 2015 21:36

All sorts can and will go wrong!

The sheer volume and breadth of HMRC blunders is staggering.  I was recently told "Call back in August" when asking when I might be able to discuss a letter I sent protesting £300 of wholly unjustified fines.  That letter was sent on April 18th and HMRC has yet to open it.

My last tax enquiry ended in August 2014.  It had no basis whatsoever in tax law, brought by a complete ignoramous who had not the faintest clue about the section of the VAT Act to which it related.  I know this because I rang her up to find out what she knew, and had to read out the section THREE times before it even began to dawn on her.

There will be howlers with this new law.  WE all know there will be, as ever HMRC are in denial.  The worst thing, of course, is that once they have unjustly snatched your money they will dream up all sorts of ridiculous, drawn-out processes to get it back, just like CIS for limited companies.

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By Sperethiel
20th Jul 2015 09:13

And what will happen where the taxpayer goes bust?

As HMRC is no longer a preferential creditor, will they pay back any amount in excess of their entitlement?

S.

 

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7om
By Tom 7000
20th Jul 2015 11:08

Its still better than....

paying protection money to Somaian Pirates

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By robertcl
20th Jul 2015 11:43

Dishonesty

Dishonest to promise that there will be controls in place, without then actually make any of those controls a requirement. In other words - it's not going to happen.

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By BetterTAX.org
20th Jul 2015 11:45

Shockingly scary...

As said already, the amount of errors that already occur makes this wholly, necessarily and exclusively unworkable. Exactly - just who did think this up on a boring day somewhere in a grey office...

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By 0098087
20th Jul 2015 14:38

What makes it worse is that the elected government of the day has gone along with it. Shows how out of touch they really are.

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By silicondale
20th Jul 2015 14:51

Mattress, gold, bitcoin?

Since any Joe Bloggs can have HMRC seize money from his account by mistake, banks are no longer a safe place to keep our money - if they ever were. Much better to keep cash under mattress. You don't even lose much interest these days. Possibly today even better to keep it as gold bars or sovereigns (very cheap now!) Another option is bitcoin. I don't think HMRC have yet worked out how to steal bitcoins !

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By geoffwolf
20th Jul 2015 11:45

If ever there were a case for keeping most bank accounts outside the UK this is it.

Clearly the won't pays will find methods to keep all but day to day monies out of UK bank accounts 

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By Flustered
20th Jul 2015 11:45

A sore subject

Extract from a letter sent to Advantis today -

"This morning I received your letter dated 16 July 2015, threatening me with legal action & court costs. It also says "You appear to be ignoring this matter in the hope that it will go away" I find this offensive in the extreme as it is your company which is completely ignoring my payment and correspondence. You are employing totally unacceptable bullying tactics.

I sent a cheque numbered 3312, first class, on 26 May. This cleared my bank account on 8  June. I sent you an email advising you of my actions on 12 June. This was acknowledged the same day. I then received a further email from you dated 18 June telling me that you could not correspond by email as it was insecure - fair enough. In that email you said that you had issued a written response, via post. If you did I never received it. I did however, receive another debt collection letter from you, which I did ignore. You are so incompetent that I assumed the left hand did not know what the right was doing.

I enclose copies of all emails for your information.

If you persist in your approach I reserve the right to produce this correspondence in my defence and will seek costs against you."

 

The debt was £214......and settled before Advantis became involved.......

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By Marlinman
20th Jul 2015 12:06

Bad News for UK Banks
All but 5 grand of my bank deposits will be going offshore.

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By silicondale
20th Jul 2015 12:10

Offshore ?

The ONLY way to be (reasonably) sure they don't get money they're not entitled to is to set up a different account at a different bank purely to hold tax that is due - and nothing more. And this is the only account that you ever let them know about. Otherwise keep all your money in a Scottish bank - or offshore. It's not tax evasion or even avoidance to use an Isle of Man account simply to protect your money from HMRC errors. 

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By chatman
20th Jul 2015 19:31

Can't hide your bank accounts

silicondale wrote:

The ONLY way to be (reasonably) sure they don't get money they're not entitled to is to set up a different account at a different bank purely to hold tax that is due - and nothing more. And this is the only account that you ever let them know about.

I think they can very easily find out which UK bank accounts you have.

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By silicondale
21st Jul 2015 10:36

Real pay packets?

chatman wrote:

silicondale wrote:

The ONLY way to be (reasonably) sure they don't get money they're not entitled to is to set up a different account at a different bank purely to hold tax that is due - and nothing more. And this is the only account that you ever let them know about.

I think they can very easily find out which UK bank accounts you have.

That's why better offshore, or not use a bank at all. I remember my first pay packets were just that. Little brown envelopes stuffed with notes and coins.

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By Michael C Feltham
20th Jul 2015 14:09

Loved this bit!

"At least £5,000 must be left available to the taxpayer across all his accounts.".

Which is extremely generous: particularly where the alleged debtor is holding circa £15,000+++ for a forward VAT bill!

In terms of mistakes by government bodies.....

http://www.telegraph.co.uk/news/uknews/law-and-order/11372343/Government...

"Once HMRC has dealt with the objection the taxpayer can appeal against the hold notice to a County Court.".

Interesting, since recently, (April 2015) County Court Plaint (Claim) Fees escalated enormously.

Please see:

http://www.compactlaw.co.uk/compactlaw-admin/court-fees.html

HMRC have instructed your bank to freeze all accounts, excepting £5,000.........

Mr Average SME will need to instruct a solictor, who will want to brief a barrister; and demand thousands up front.......

Conclusion:

Liquid to a significant degree?

Move it offshore ASAP!

n.b. And this will assist HMRC and Government's crack down on tax avoidance and evasion.

 

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By johnjenkins
20th Jul 2015 14:35

Ok let's

take bets on how long the £5K available funds limit will last. So a year after the launch HMRC will issue a statement saying that after a fruitful year the limit is going down to £1k.

Who will the banks charge for having to supply this information?

No good appealing to county court. They will just rubber stamp the debt.

The only real problem I foresee is the error element, especially prhaps for the elderly.

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By johnjenkins
20th Jul 2015 16:04

what about

money held for clients, CIS, Solicitors etc. It appears that it is frozen first and ask questions later.

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By accountsdragon
21st Jul 2015 10:17

How many debtors have £5K?

I have a couple who ignore all demands, thinking they'll pay when they sell the house, get a big contract etc etc.  If they had £5K in their banks they'd think they'd won the lottery! 

 

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By johnjenkins
21st Jul 2015 11:00

Perhaps George

will let you use his family offshore trust.

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By robertcl
21st Jul 2015 18:29

In credit or just available?

I just read this article again.

"At least £5,000 must be left available to the taxpayer across all his accounts"

Does this mean that if I have a £7,000 overdraft facility, I will be left with my account £2,000 overdrawn?

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By MrotsylliD
21st Jul 2015 12:22

Robert Cl Said:

robertcl wrote:

I just read this article again.

"At least £5,000 must be left available to the taxpayer across all his accounts"

Does this mean that if I have a £7,000 overdraft facility, I will be left with my account £2,000 overdrawn?

Ha ha ha.
Brilliant.

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Jennifer Adams
By Jennifer Adams
21st Jul 2015 12:41

They didnt listen...

In my article 'HMRC Consultations - have they listened' I wrote....

https://www.accountingweb.co.uk/article/hmrc-consultations-have-they-lis...

Direct recovery of debts (DRD)

It was in the consultation on the proposals contained in this document that the impact of ‘customer’ dissent came into its own. It would have been thought that the importance of such significant changes would have merited a consultation period in excess of the standard ten weeks, even so, by the end of those 10 weeks 124 different organisations had made their views known such that on the front page of the outcome statement it is stated that, “The government has heard the concerns voiced during the consultation and is grateful for the constructive and informative suggestions it received”. The government might well have heard but the proposals were going to be implemented whatever the views of their customers and agents.

One thing I have done for all my clients is gone into HMRC's site and deleted all the contact numbers for all clients.

So HMRC have to come to me first.

 

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By Michael C Feltham
21st Jul 2015 19:16

Oh dear!

JAAdams wrote: "The government might well have heard but the proposals were going to be implemented whatever the views of their customers and agents.".

That's normal!

During the past 30 years until I realised my time was much better spent elsewhere, I have made endless responses to various organs of government and even been asked to respond by one, well ahead of the day!

Conclusion: They have already decided what their plans, strategies and policies are: the supposed "Consultation" is simply an exercise in whitewash and the effluent product of a steer's rear end!

HMRC seem intent in usurping and amending established law of this nation, in a manner which can only be described as anarchic: and more suitable to an autocratic Fascist state, rather than a supposed democracy. They have changed the rule of law from innocent until proven guilty (beyond a shadow of a doubt) to guilty unless the taxpayer can prove HMRC are wrong, and afford to pursue such process.

Philosophically, I believe this has been driven by two realities:

First, HMRC's current ineptitude and desperation to both cut costs and demonstrate to equally out-of-control Government some level of success in harvesting tax revenues; and,

Second, since HMRC are increasingly driven by profligate Government to somehow raise more and more money to feed Government's insatiable maw.

Add the further political element of Government demonising legitimate and legal tax planning as somehow not fair and immoral, only because holistic taxes are far too high and voters increasingly angered by the uber-wealthy's legal tax evasion exploits when many families struggle to simply make ends meet and one can clearly see Government's own self-created dillema.

 

 

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By bernard michael
27th Jul 2015 11:31

The banks served with the HMRC notices will also probably close the customers accounts as being unacceptable risks with the obvious attendant consequences. Surely this isn't what the Govt want

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Adrian Pearson
By Adrian Pearson
27th Jul 2015 14:52

Paypal?

Could a taxpayer transfer money to a Paypal account and then back to their bank account once HMRC have accepted the appeal / admitted their mistake?

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Chris M
By mr. mischief
28th Jul 2015 11:49

Mmmm

I would never advise anyone to use Paypal, here is why.

About 8 years ago my Paypal account had about $3 in it.  But someone managed to withdraw over £1,000 from my current account.  He achieved this feat becasue 3 or 4 years previously I had loaded up my Paypal account from my UK debit card.

Because I was checking my statement that same day for another matter, I spotted this put through withdrawal right away, and Paypal refunded me though whether they got the money off the fraudster I know not.

I also don't know if this sort of put through is still possible.  But for this and other reasons I would never recommend clients to use Paypal.

 

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By johncharles
01st Aug 2015 11:31

Wonder what they might do in my circumstances?

Four years ago I dissolved my limited company. It only had 2 creditors and 1 debtor. It owed me a sizable amount as a director for expenses etc. I paid on it's behalf. The other creditor was  HMRC PAYE and the debtor was HMRC VAT and the net result was that the company owed them about £1,000 which I paid off personally. I informed both departments about setting off the VAT against the PAYE and the VAT office ignored my letter several times. However the PAYE department also lashed up and somehow doubled the amount of the PAYE creditor and that amount, plus interest, is still showing as owed by my dissolved company to them. I have again written to their debt management team with copies of all my correspondence, about 6 months ago, and have totally ignored me. I have had no further correspondence about the so called debt but the online account is still showing an ever increasing debt with the interest they add on. I was the only director/ shareholder of the company under my old name but in 2012 I changed my name by deed poll to get away from nuisance phone calls from certain people in my past.

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By AndrewV12
03rd Aug 2015 11:51

We have been here before

HMRC has tested the water on taking unpaid taxes / tax credit over payments direct from Clients bank accounts many times, it was always going to be rolled out.

 

Its that old 30 days to appeal rules, most clients sit on problems for at least one year mmmmm trouble ahead.

 

Mind you I dont blame George, were skint and these rules were always going to be introduced.  

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By mikefleming3028
05th Aug 2015 17:01

Published today https://www.gov.uk/government/publications/is

Read todays release at the above link, the biggest load of twaddle, misdirection and false promises I have had the "privilege " to read since HMRC introduced Schedule 36 notices. If your average taxpayer  understood what was about to happen there would be an uproar a it is it will sneak  through under the radar with barely a whimper from our various professional bodies. Any intelligent assessment of the content of todays missive would have us all withdraw all but £5K from all of our bank accounts and either move the withdrawn balances to a Scottish bank account or better still to a biscuit tin buried in a nice deep hole at the bottom of the garden            

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By silicondale
29th Sep 2015 10:43

Next step - to outlaw cash ?

mikefleming3028 wrote:

Read todays release at the above link, the biggest load of twaddle, misdirection and false promises I have had the "privilege " to read since HMRC introduced Schedule 36 notices. If your average taxpayer  understood what was about to happen there would be an uproar a it is it will sneak  through under the radar with barely a whimper from our various professional bodies. Any intelligent assessment of the content of todays missive would have us all withdraw all but £5K from all of our bank accounts and either move the withdrawn balances to a Scottish bank account or better still to a biscuit tin buried in a nice deep hole at the bottom of the garden            

They may even make the biscuit tin option unworkable if we are to take the various hints seriously, that they want to outlaw cash itself - so that ALL transactions must be electronic. We're already on the slippery slope, with oyster cards, contactless payment debit-cards, etc. When coins and paper money are taken out of circulation, it will be only a simple extra step to make holding of gold and silver illegal (it's been done before - in the USA). We'll then be left with a choice of barter economy and automated taxation through negative interest rates on all bank balances (principle: spend it or lose it). The existence of cash is possibly the main reason that BoE hasn't so far been able to take its base rate negative. 

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By johnjenkins
05th Aug 2015 17:30

My vision

of us working and Government giving us pocket money is not too far away. Jeremy you're nearly there lad.

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jlsmith
By jlsmith
29th Sep 2015 10:04

What is a 'Scottish' bank account?

After all Lloyds Banking Group has its headquarters in Scotland.

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By johnjenkins
29th Sep 2015 11:54

I've thought

aout the cash scenario for some time and I don't think that any Government would dare do it.

We already have an internet currency and barter system. If all countries did it then perhaps it might get off the ground. It would be so easy to trade in Euro's, Ecu's or dollars. How can they ban you from having Euro's? All the brains and talented would move out. No I think that the whole idea of bank account robbing will misfire and bite the Tories on the bum[***].

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By Michael C Feltham
30th Sep 2015 10:30

Couldn't!

johnjenkins wrote:

aout the cash scenario for some time and I don't think that any Government would dare do it.

We already have an internet currency and barter system. If all countries did it then perhaps it might get off the ground. It would be so easy to trade in Euro's, Ecu's or dollars. How can they ban you from having Euro's? All the brains and talented would move out. No I think that the whole idea of bank account robbing will misfire and bite the Tories on the bum[***].

Unless government revived the Exchange Control Act 1948, repealed by Thatcher in 1979/80. The net result of this cleverness being the majority of UK investment capital immediately departed these shores!

Which, inter alia, is precisely why Twee Georgie has had to go cap in hand to the Chinese begging them to build and fund a new nuclear power stattion!

 

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By johnjenkins
30th Sep 2015 10:49

Macca

was asked if he would move at that time. His reply was "my Accountant has told me that I wouldn't be able to spend the money I've got never mind what I will earn".

If you notice DC and co aren't going cap in hand. They are forging new trade deals so that we either have more clout in the EU or a better future when we pull out.

Some might say he's putting a rather nice ganja deal together, perhaps for a new crop of university bods. (that's a bit of satire Francois).

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