The authority could soon have direct access to tax dodgers’ current and savings accounts to recover debts.
HM Revenue & Customs (HMRC) believes its new powers to retrieve outstanding tax from individuals and businesses that aren't paying their tax bills will see it access around 17,000 bank accounts a year.
Earlier this year Chancellor George Osborne announced plans for new tax collection powers for HMRC. Dubbed the Direct Recovery of Debts (DRD) it would allow the authority to retrieve outstanding tax from individuals and businesses able, but refusing to pay what they owe.
The new rules would apply to persistent dodgers with tax debts totalling over £1,000 and enable HMRC to seize money owed directly from their bank or building society accounts, including ISAs, without having to go through the courts.
The Government is now consulting on this proposal, with a view to granting the taxman DRD power by 2015.
HMRC says although the majority of people pay what they owe in a timely fashion, around 10% don’t and it has to pursue this as debt.
The current process of recovering this money is costly, takes time and can be invasive (the authority already has the power to seize goods to satisfy debts) so HMRC is pushing for the DRD, which it says will bring the UK in line with other countries that already use similar powers including the US, Australia and Sweden.
The new unpaid tax recovery method is likely to apply to an estimated 17,000 cases a year, which each have an average debt totalling around £5,800.
Analysis by HMRC has shown that many tax dodgers who are in debt to HMRC have enough money in their accounts to clear what they owe. It claims 73% have over £10,000, 48% have over £20,000 and 21% have over £50,000 stashed away, yet refuse to pay their bill.
Over 2013/14 the Exchequer collected £475.6 billion in taxes. The DRD is estimated to bring in an extra £65 million over 2015-2016 rising to £120 million in 2016/17. The cost of implementing the policy is estimated to be £800,000 over five years.
HMRC says the new rules would modernise administration and would help build a fairer tax system where the "honest, hardworking majority are not disadvantaged by the minority that dodge their responsibilities".
How DRD will work
Should a taxpayer persistently dodge their tax bill, HMRC will class what is owed as a debt.
Once a debt is established HMRC will consider what the debtor has in their accounts and place a hold on the funds.
The debtor will be alerted that HMRC intends to take part or all of what is owed and will be given the chance to set up a payment plan or arrange alternative payment.
Those that are unable to pay what they owe in time can contact HMRC to request a Time to Pay arrangement which allows you to break down the debt into instalments.
To ensure only those refusing to pay their tax bill are targeted and to ensure no one is forced into any hardship under the new rules HMRC has confirmed there will be certain safeguards put in place.
- Only targeting businesses and individuals with tax and tax credit debts over £1,000.
- Setting up a dedicated DRD team and helpline for DRD cases.
- Only targeting debtors who have been contacted a minimum of four times and have passed the timetable for appeals.
- Putting a debtors’ accounts on hold and giving them 14 days to contact HMRC and arrange payment of the debt, before any money is taken.
- Giving joint account holders equal rights to object or appeal.
- Leaving a minimum of £5,000 in the debtor’s accounts, after the unpaid tax is seized to avoid any hardship.
- Fully compensating for any losses incurred as the direct result of any error made by HMRC including on ISAs.
Groups originally concerned about DRD, when it was first announced in the March Budget, have welcomed the safeguards set out by HMRC.
Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, called them "robust".
But concerns remain about how the authority will wield this power and its accountability.
The Low Income Tax Reform Group says there needs to be clearer assurances about the right to appeal against a seizure and reclaim cash in the event the tax authority gets it wrong.
When will DRD become law?
The proposal to allow HMRC direct access to tax dodgers’ accounts has now opened for consultation.
The Government is welcoming comment on the plans from anyone who might be impacted including groups representing vulnerable taxpayers until 29th July 2014.
Responses should be sent by e-mail to firstname.lastname@example.org or by post to: Andrew Willis, HM Revenue & Customs, Debt Management and Banking, Room 3/46, 100 Parliament Street London SW1A 2BQ.
If approved the DRD will form part of the 2015 Finance Bill.
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