Tax debts of the vulnerable

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HMRC now has the power to collect tax directly from taxpayers’ bank accounts, under the direct recovery of debt (DRD) rules.

This power can potentially be applied to tax debts owed by anyone who is not a “vulnerable person”. What’s more the bank can charge up to £55 for the costs it incurs in complying with DRD orders to pay funds to HMRC. 

How did we get here?

I outlined the scope of the DRD rules in HMRC’s hands in your bank account in July 2015. The legislation to introduce this power was passed as Schedule 8 of F(no. 2)A 2015 on 18 November 2015.

An Issue Briefing containing updated guidance on how HMRC will operate the DRD power was published on 5 August 2015. This lists the actions HMRC will undertake to ensure the right person and the correct tax debt has been identified.

Who is vulnerable?

The DRD legislation includes the requirement for HMRC to consider whether the taxpayer is at a particular disadvantage in dealing with their tax, or tax credit, affairs. The DRD powers can be used to recover overpaid tax credits as well as tax, penalties and interest owing to HMRC.

Being at a particular disadvantage is interpreted as being “vulnerable” and a new HMRC policy paper lists the factors HMRC will take into account when considering whether a person is vulnerable. These include:

  • having a disability or long-term health condition that impacts on the person’s ability to communicate to understand the debt;
  • having a temporary illness that affects understanding  or communication;
  • personal issues that affect the person to such an extent that they cannot understand the debt or cope by themselves – such as bereavement or trauma caused by assault; or
  • learning difficulties which have resulted in low levels of literacy, numeracy or education.

Where a taxpayer is identified by HMRC as being vulnerable the tax debt will not be considered for DRD procedure, and HMRC says it will give the taxpayer alternative support to help them pay the money owed. In the summary of responses to the DRD proposals in November 2014, HMRC promised to establish a “vulnerable customers unit” inside its Debt Management division, but there no sign that promise has been put into practice yet.  

Bank charges

Although the DRD procedure came into effect on 18 November 2015, the related regulations are still being passed. From 10 February 2016 banks are given permission (SI 2016/44) to charge the account-holder up to £55 for participating in the DRD procedure to pay funds to HMRC. This fee can only be charged if it has been agreed with the account-holder, and it does not exceed the administrative costs incurred in carrying out the actions required under DRD.   

About Rebecca Cave

Consulting tax editor for I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.


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30th Jan 2016 11:09

Worth mentioning

It should be worth mentioning that DRD only applies to those that have refused to pay, who have tax debts of at least £1000 and HMRC must leave £5000 in the account.

The article comes across as implying that HMRC can dip into our bank accounts willy nilly. They can'

NB. My apologies to taxwriter, I had not read the previous article linked to.


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29th Jan 2016 14:01

Previous article outlined scope of DRD

My previous article - which is linked to above, detailed the limits and scope of DRD, in particular the £5000 balance to be left in the account and the tax debt minimum.

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29th Jan 2016 16:15

Could be worrying

I have a client, who had his VAT account closed down upon termination of his company when they owed him repayments of VAT, and he asked the PAYE and VAT office for them to offset against unpaid PAYE. He paid the balancing amount. However the HMRC lashed up his payroll by adding on corrections, instead of deducting them, and deducting the same SSP three times. the result was a debt of £11,000. The revenue now seemed to have written off the debt, according to their system, as the total debt has a credit for the full amount shown as an adjustment. The client now thinks everything is alright and no need for worry.

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