In April’s Update, we reported on HMRC’s new powers to recover tax debts of £1,000+ directly from taxpayers’ bank accounts. HMRC can target individuals and companies about a wide range of taxes. Various safeguards were initially proposed including leaving at least £5,000 in the account and potentially more where needed.
Despite these various safeguards, the proposals have become infamous. A wave of protest followed the initial consultation, including an e-petition with nearly 5,000 signatories.
HMRC published its response on Friday, 21 November. Not surprisingly, it will press ahead with the plans but have agreed further safeguards which include:
- 1. A face-to-face meeting with every proposed debtor before instigating DRD.
- A new vulnerable customers unit which will liaise with voluntary organisations about people who may be put at risk.
- Increasing the period from 14 to 30 days during which the funds will be frozen in the debtor’s account but not removed. The taxpayer can use this period to identify ways to pay or to challenge the decision.
- A new route of appeal to the county courts on specific grounds such as hardship or third party rights such as a joint account holder.
- Removing the power to require banks to provide 12 months of statements. This had been intended as a safeguard but raised privacy concerns and put a burden on banks.
These further safeguards are substantial, especially since many watchers expected HMRC to give little ground. Some of the detail needs to be worked out. For example, the period of time that HMRC must persist in attempting to arrange a meeting. The clear aim of these proposals is to shift the emphasis and to alert debtors to try to resolve the problem themselves. HMRC evidently hopes that the DRD will be a little-used tool.
HMRC will enact the proposals in the Finance Bill 2015 and review them after a trial period of two years.
Coding out limits increased
This development has received less press attention than DRD but it will arguably have a greater impact. Since 2011 HMRC has had the power to recover up to £3,000 of tax debts by adjusting (“coding out”) the taxpayer’s PAYE code over the next tax year.
Secondary legislation has now increased that limit from £3,000 to £17,000 for 2015/16, dependent on means-testing. Taxpayers earning less than £30,000 p/a will retain the £3,000 limit, incrementally increasing up to the £17,000 limit for those earning over £90,000 p/a.
Progress on Accelerated Payment Notices (APNs)
As we also reported, APNs were launched in the summer to disincentivise delaying payment for cashflow reasons. HMRC may issue APNs either if there is an ongoing compliance check or open appeal, or if the taxpayer has received a follower notice, is a subscriber to a Disclosure of Tax Avoidance Schemes (DOTAS) scheme or has received a GAAR counteraction notice. The taxpayer has 90 days to pay the amount at dispute. If the decision is ultimately in his favour, it will be repaid “with interest”.
HMRC has now released figures for the first two months of the APN regime. It has sent out around 600 notices covering £250m of disputed tax and so far received over £25m.
Given that a DOTAS number is such a crucial requirement for an APN, it is not surprising that HMRC has been consulting on extending the number of registered schemes (currently 1,200). For example would be to widen DOTAS to IHT mitigation and remove the grandfathering rules for established schemes. The consultation period closed on 23 October.
Political appetite for new powers
Despite all the above, HMRC recently received a pasting by Parliament’s Public Accounts Committee. The Committee criticised HMRC for being too cautious in tackling tax avoiders and being too slow to take action when they do. Many users of the Liberty scheme escaped action, for example, because HMRC failed to start enquiries within the statutory deadline.
The Committee also urged HMRC to make greater use of APNs and not to allow avoiders to devise schemes that avoid DOTAS and GAAR. HMRC said it already monitored “tax avoidance discussions on internet chatrooms and other media” and is taking action against the 130,000 names on the Falciani list.
In the light of this clear political mood, it would be surprising if HMRC were not given further powers in the future.