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Direct recovery of tax debts

Published Wednesday, July 24, 2019

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]  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]

At the time of the Summer 2015 Budget the Government stated that HMRC would review DRD after two years of operation, to be laid before Parliament.[11] In April 2019 HMRC published a review of its use of DRD over the period April 2016 to December 2018. This concluded that “the intervention has achieved its policy objectives and has contributed towards collecting £178 million of tax revenue. The low volume of complaints, objections and appeals, the low number of those upheld, and the identification of vulnerable customers, confirms that the correct debtors are being identified.”[12]

HMRC publish guidance on the application of this power,[13] and the criteria used to identify vulnerable customers who would not be considered for DRD,[14] as well as general information for taxpayers who are facing difficulties in paying their tax bill.[15]

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]     HMRC 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]    HMT/HMRC, Overview of Tax Legislation & Rates, 8 July 2015 p120

[12]    HMRC, Review of the direct debt recovery intervention, 16 April 2019

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

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

[15]    HMRC, “If you don't pay your tax bill”, ret’d July 2019

Commons Briefing papers SN07051

Author: Antony Seely

Topic: Taxation

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