Tax professionals have welcomed the government’s decision to modify proposals for the direct recovery of tax debts from bank accounts. Chas Roy-Chowdhury, head of taxation at ACCA, said the revised proposals were “light years better than what was originally proposed”.
The government will not try to push through the necessary legislation before the general election. It intends to “legislate in a Finance Bill in 2015, during the next Parliament”, financial secretary David Gauke said. Draft legislation will be published for consultation.
HMRC estimates that direct recovery of debts (DRD) will apply to around 17,000 cases a year. Around half will involve debtors with more than £20,000 in their bank and building society accounts, and the average debt of those affected will be £5,800.
“This is about levelling the playing field,” Gauke said. “The vast majority of people pay the tax that is due, on time, but there is still a very small minority who try to gain an unfair advantage by persistently refusing to pay what they owe, despite being able to.
“We already set out robust safeguards to protect vulnerable debtors in our original proposals, but feedback from the consultation process told us we could do more to make sure this only catches those who are playing the system.”
HMRC said the new safeguards, set out in detail in a response document published this morning, would include:
- Guaranteed visits to debtors from an HMRC officer to meet them face-to-face, allowing HMRC to identify vulnerable members of society to provide them with appropriate support;
- Establishing a new, specialist unit to deal with cases involving vulnerable members of society, as well as providing a dedicated DRD team and helpline;
- Ensuring that judicial oversight of the process is enshrined in legislation, by allowing for appeal to the County Court;
- Putting a hold on debtors’ accounts and giving them 30 days – more than twice as long as previously planned – to contact HMRC and arrange payment of the debt or object to the use of DRD, before any money is taken;
- Further new safeguards relating to transparency, governance and a phased implementation of the DRD powers.
HMRC will apply DRD to “a smaller number” of cases in 2015/16, the first year of operation, allowing the department to “gain experience and feedback”. A proposed requirement for banks to provide 12 months of data on a debtor’s account history will not be implemented, in response to concerns about debtors’ privacy.
Chas Roy-Chowdhury said: “There will now be a totally different ethos behind the way the power will be designed and implemented. It will no longer be played out as a remote controlled video game where HMRC remotely takes money out of the taxpayers account. There will now need to be face to face engagement between HMRC and the taxpayer before anything can happen. Vulnerable taxpayers will be identified and taken out of the process entirely and put in touch with a dedicated helpline.”
ICAEW chief executive Michael Izza said Gauke deserved “real credit “ for listening and taking on board concerns expressed in response to the consultation launched in May.
Paul Aplin, chairman of the ICAEW Tax Faculty Technical Committee, said: “We still need to see the detail in the draft legislation but the changes announced today do seem to address the main concerns. The lack of any independent oversight was a show-stopper and including the right of appeal to a county court addresses that issue.”
Aplin said face to face contact, an increased time limit for appeal and a triage process to identify vulnerable taxpayers represent “very significant” changes which showed that ministers and HMRC had “listened, understood and acted”.
“We are now in a very different place,” he added.
Chartered Institute of Taxation president Anne Fairpo said the CIOT had maintained during the consultation that “the rule of law should not be undermined”.
She added: “It is for this reason that we are especially pleased to see changes allowing appeals to the county court. If an objection to DRD is made by the taxpayer, it will be internally reviewed by HMRC and the time limit to request a review has increased from 14 to 30 days. If the review is denied, the taxpayer will be given a further 30 days to appeal to the county court; this is the kind of external oversight we have been seeking.”
Fairpo said the revisions announced today were “proof that the government has listed to, and taken on board, the concerns of interested stakeholders” and showed “the merit of sustained engagement”.
A petition created by Taxation editor Mike Truman, calling on the government to withdraw the proposals and carry out a wide-ranging consultation on the problem of deliberate non-payment, has attracted more than 4,500 signatures.