HMRC push to recover debts directly from your bank account

In the last budget the government announced proposals for new HM Revenue & Customs (HMRC) powers which have proved very controversial and sparked much debate.

By 2015, proposed new powers will allow HMRC to:

- Access individuals bank accounts where upwards of £1,000 unpaid tax is due, to take the money directly

- Take any disputed tax upfront where you have taken part in any registered scheme since 2004

Chancellor George Osborne has promised to “fundamentally reduce the incentive to engage in tax avoidance in the future”. The plans to access accounts are currently going through a consultation process and a report will be published by Autumn this year. The legislation is expected to be taken forward as part of the 2015 Finance Bill. The collection of tax upfront has already become law in the Finance Act 2014.

Many commentators believe that deducting money directly from debtors’ bank accounts goes against the Magna Carta protections for the individual against the state. HMRC reject these claims and the Chief Executive, Lin Homer, recently said “I don’t think this is against Magna Carta. I don’t think it is substantially different from the PAYE arrangement”. Many would argue it is and that this is a step too far. Being taxed at source is substantially different to the state dipping into our private bank accounts and deciding whether or not they think they have left us with enough money. This seems, by far, to be the most controversial part of proposals.

HMRC’s defence includes the fact that they would only recover debts directly where the debt is over £1,000 and if that leaves them with at least £5,000 in their accounts. They would also work with other financial institutions to check whether spending patterns suggest a larger sum should be left in their accounts to avoid causing hardship. They also refer to similar systems used in Australia and the US.

It could be argued, that, if someone has £100,000 in savings, why should they be able to get away with not paying their taxes, which they haven’t even disputed are due and are just deliberately withholding the tax payments? The people who are targeted will have been contacted at least 4 times and on average, 9 times, before the action is taken. Also, taxpayers will be given 14 days to engage with HMRC before any money is taken. All these points generate more sympathy for HMRC’s case, but the proposals still seem fundamentally flawed.

Accessing private bank accounts removes a legal protection the taxpayer has and can’t be justified because it’s slow and expensive to follow the due process via the courts. Yes, it diminishes the amount of tax collected if HMRC has to battle through courts for monies rightfully due, but it’s far too dangerous to remove that protection for the individual. HMRC won’t always get it right and the scope for serious errors that the individual may never be properly compensated for is huge. This is, probably, the main reason for the concern.

Paying tax upfront on disclosable schemes may be an incentive not to engage in scheme based tax avoidance, but it is more likely to just push more schemes under HMRC’s radar. There will still be plenty of people whom promote such schemes from a distance and whom will encourage non disclosure to avoid upfront payment. This isn’t to say it’s excusable to do so, but it will give HMRC less information on the schemes they are trying to shut down.

As HMRC can now raise these demands and intend to do so until March 2016 it will also be interesting to see if payments are made or, perhaps,  there are so many challenges that arise that the whole system grinds to a halt.


Richard Askew – Corporate Director

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