Could HMRC Soon ‘Raid’ Your Bank Account?

Jennifer Adams looks at a worrying possible future HMRC power.

A Chancellor presenting his annual Budget is allocated an hour of Parliamentary time. In this short period, he must outline the state of the economy and the Government’s proposals for changes to taxation. It is therefore not surprising that he uses the time to announce the proposals he knows will attract most attention. In the 2014 Budget, the ‘surprise’ proposal was the radical overhaul of the pension industry. However, there is a provision hidden in the depths of the 120 pages that comprise the published document, which arguably should have been given more media attention. This article considers the impact of this provision on all taxpayers.

The vast majority of taxpayers pay their tax bills in full and on time, which means that some do not. There may be a number of reasons for not doing so, not least that the taxpayer is in dispute with HMRC over the amount charged. The Chancellor’s proposals (‘The Provision for Direct Recovery of Debts’) are not intended to be levied on such taxpayers; rather the aim is to recover monies from those who have the means to pay but do not, and those who do not pay purposely as delaying tactics. 

HMRC term the measures as ‘administrative’ but they are more than that – they will grant HMRC the power to collect payment of ‘significant debts’ (defined as being in excess of £1,000) directly from bank current or savings accounts (including ISAs). It is intended that at least £5,000 will remain available to the taxpayer after the debt has been recovered (over and above normal calculated expenses), thus supposedly ensuring that the direct recovery of debts (DRD) does not create unnecessary financial hardship for those affected. 

HMRC already has the legal power to confiscate certain types of assets without recourse to the courts. There is no similar power to withdraw cash and as such these new provisions for compulsory withdrawal mean that HMRC will no longer have the expense of court proceedings.

HMRC have stressed that this is a ‘last resort’ procedure in that it will only be applied following attempts to make contact by both telephone and letter (stated as being ”a minimum of four plus letters and around nine in total, including from teams of ‘specialist debtors’”). The ”team of specialist debtors” is already in place in the form of the Debt Management and Banking Team (DMB), which pursues tax debts that are in principle agreed (i.e. the liability is acknowledged to exist). 

Under the DRD procedure, notification of its commencement will be issued to the debtor, who will then have 14 days in which to respond either to query the amount being taken or appeal on hardship grounds. Should HMRC not uphold the objection, the taxpayer will retain the right of judicial recourse.

Once the procedure starts, there will be another 14 days lapse with the monies being held in HMRC’s bank account, thus allowing further time for appeal, but only on the grounds of undue hardship, that the funds are not the taxpayer’s, or that the debt is no longer due.

The consultation document 

As the proposals are so radical, and as a requirement under the Governments’ new ‘transparency’ initiative, a consultation document has been published, asking for constructive comments by 29 July 2014. 

The Government’s main stance is that other countries have similar provisions as routine – it works for them so why not for us? The document outlines the procedures used in other countries (e.g. USA and Australia) and it is interesting to note that many use ‘garnishee orders’ to collect their tax debts. A ‘garnishee order‘ is a court order that instructs a garnishee (a bank) to pay a given sum to another party from funds held. HMRC are intending to discard such legalities under DRD.

Response to the detail in the consultation paper 

Despite the deadline for submissions being a couple of months away, a number of professional bodies have already published their reactions to the proposals. It will come as no surprise that they have concerns. Even the House of Commons Select Committee in their Budget report issued on 7 May 2014 voiced doubts as to whether the procedure should be implemented as intended.

The professions are particularly concerned knowing the inefficiency of HMRC as a whole that the safeguards given will prove to be inadequate. According to research by the law firm Pinsent Masons, nearly three out of five complaints made to HMRC in 2010/11 resulted in HMRC admitting fault.

There are some questions remaining to be answered; these include:

The consultation document states that banks and building societies, etc are already required to share information with HMRC about interest paid or credited to accounts such that DRD will only be considered ”in specific cases where a clear match is found, based on HMRC’s existing data”. What constitutes a ”clear” match and how up to date will HMRC’s data be? 

If the monies are found not to be owing, how long will the taxpayer have to wait for the return of his money? The consultation document states that any error will be ‘easily reversible, allowing HMRC to swiftly remove the hold on funds once the debtor has arranged to pay what they owe, or return funds to a debtor’s account where necessary’. Note that there is nothing to confirm how long the monies will be withheld. A response from a letter to HMRC invariably takes 6 weeks - this is easily enough time for a business to go bankrupt or have an overdraft facility withdrawn with credit rating concerns should the same time frame be used;

The document states it will assume that joint accounts are held 50:50 and take 50% of the credit balance. The joint holder will have the right to object on the grounds of hardship or misidentification. The text does not confirm a right of appeal. Many accounts are not held 50:50 - how will HMRC know the beneficial ownership, in order to take a proportionate amount?; 

The main objection to the new proposals is not for any practical reason; rather that the measure is wrong in principle by infringing civil liberties such that no-one should access someone else’s bank account without their express permission or under court proceedings.

As the new procedure for the DRC has been announced and is subject to consultation, the proposals will become law in some form or another. Even more reason that, should anyone have difficulty in paying their tax bill, they are advised to contact HMRC sooner rather than later and/or take professional advice.