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Direct recovery of tax debts

Published Friday, May 11, 2018

This note discusses the introduction of a new power, initially announced in the 2014 Budget, to allow HM Revenue & Customs’ to recover debts for both tax and tax credits directly from individuals’ bank and building society accounts.

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In the 2014 Budget the then Chancellor, George Osborne, announced proposals to augment HM Revenue & Customs’ powers to recover tax debts directly from individuals’ bank and building society accounts. Provision to this effect would be made in the Finance Bill in 2015.[1]  At the time it was estimated that this could raise £65m in 2015/16, rising to £110m in 2016/17.[2] It was anticipated that HMRC would be empowered to recover debts of £1,000 or more, subject to the stipulation that HMRC would have to leave a minimum £5,000 across any person’s accounts when using this power.

HMRC launched a consultation on Direct Recovery of Debt (DRD) some weeks after the 2014 Budget,[3] and the proposals were strongly criticised by taxpayer groups, accountancy bodies, and the Treasury Committee.[4] In November 2014 the Coalition Government published a summary of the responses it had received and details of its revised approach: first, DRD would be underpinned by a number of safeguards,[5] and second, although draft legislation to introduce DRD would be published at this time, it would include these provisions “in a Finance Bill in 2015, during the next Parliament … to allow for an extended period of scrutiny.”[6] These changes were strongly welcomed by professional and representative bodies.[7]

Subsequently in its Budget following the 2015 General Election, the new Conservative Government confirmed this provision would be included in its Summer Finance Bill: “Having widely consulted, this measure will be subject to robust safeguards including a county court appeal process and a face-to-face visit to every debtor before they are considered for debt recovery through this measure.”[8] Provision to this effect was included in the Finance (No.2) Act 2015 (specifically section 51 & schedule 8). The Government revised its estimate of the Exchequer impact of this measure, stating it would raise £20m in 2015/16, rising to £100m in 2016/17, and would affect around 11,000 individuals (including self-employed taxpayers) and businesses a year.[9]

Since its introduction, HMRC’s use of this power does not appear to have proved controversial, and it is not something that has been raised very often by Members.[10]

HMRC publish guidance on the application of this power,[11] and the criteria used to identify vulnerable customers who would not be considered for DRD,[12] as well as general information for taxpayers who are facing difficulties in paying their tax bill.[13]

Notes : 

[1]     HM Treasury, Overview of Tax Legislation & Rates, March 2104 para 30

[2]     Budget 2014, HC 1104, March 2014 para 2.203, p57 (Table 2.1 – item 54).

[3]     HMRC, Direct recovery of debts: consultation document, 6 May 2014

[4]     For example, “Plans to seize tax debts raise concerns”, Financial Times, 5 April 2014; “Just say no!”, Taxation, 29 May 2014; & Treasury Committee press notice, 9 May 2014

[5]     HMC press notice, Government strengthens safeguards for direct action to recover debts, 21 November 2014

[6]     HMRC, Direct recovery of debts: summary of responses, November 2014 p3

[7]     “New safeguards for proposed direct recovery of debt powers”, Tax Journal, 28 November 2014

[8]     Budget 2015, HC 264, July 2015 para 2.170.

[9]     HMRC, Direct recovery of HM Revenue and Customs debts from debtors' bank and building society accounts: tax information & impact note, 8 July 2015

[10]    For one exception see, PQ49050, 21 October 2016.

[11]    HMRC, Issue Briefing: Direct Recovery of Debts, August 2015

[12]    HMRC, Direct Recovery of Debts and vulnerable customers, February 2016

[13]    HMRC, “If you don't pay your tax bill”, ret’d 11 May 2018

Commons Briefing papers SN07051

Author: Antony Seely

Topic: Taxation

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