HMRC’s chief executive Lin Homer has robustly defended proposals which will give the tax department powers to recover debts directly from taxpayers’ bank accounts, saying that current processes to claim outstanding tax are being manipulated by a small minority to avoid payment say Harris & Co accountants Northampton, the specialist small business accountants #accountantsnorthampton
Giving evidence e to the House of Lords Treasury select committee this morning, Homer said direct debt recovery (DDR) proposals, which are subject to a consultation closing at the end of this month, would apply to around 17,000 individuals who owe an average of £5,800.
‘These are people where the tax owed is not in dispute, but they have chosen not to pay. Often they are repeat debtors who are well aware of the process HMRC goes through to recover a debt and are gaming the system. The costs of taking them to court to claim the amount due are likely to outweigh or seriously diminish the tax collected, and they know that,’ Homer said.
HMRC is proposing that DDR will apply in cases where it suspects people of deliberately withholding tax and where they have been contacted a minimum of four and up to nine times.
Homer told the committee that several other countries, including the US, Canada, Australia and France, already use similar options.
In answer to questions, Homer said the issue of adequate safeguards was important and pointed out the first step would be to ask banks for 12 months of statements before requesting a hold on the account. There will be a 14-day ‘cooling off’ period once an account is frozen when the taxpayer can either settle or seek to challenge the decision, and if a debt is recovered HMRC will leave a minimum of £5,000 in the account.
Homer told the committee that HMRC analysis suggests half of those likely to be affected by the new rules have savings of £20,000 and 20% have savings of over £100,000.
HMRC figures suggest the new powers will result in £375m of tax collected over the first four years.
In cases of hardship, Homer said HMRC would have discretionary powers to allow taxpayers to take their case to tribunal, even if it was out of time, and would also consider time-to-pay arrangements.
Committee chair Andrew Tyrie questioned whether there would be prior independent oversight of who was subject to these provisions, but Homer said she saw ‘no merit’ in such an approach.
Chas Roy-Chowdhury, head of taxation at ACCA, said that any powers that allow a government body to dip into individuals’ bank accounts at will raise major issues and concerns.
‘Although there are some robust safeguards in the proposals, there is a fear that this will set a precedent for HMRC and other government agencies. This is a dangerous route to begin to go down. Ideally, the safeguards in place need to be so strong that these powers rarely get used by HMRC, if at all,’ Roy-Chowdhury said.
In other evidence, Jim Harra, HMRC director general, business tax, denied that HMRC’s accelerated payments scheme could be viewed as retrospective legislation. Under the new rules, investors in tax avoidance schemes which have been challenged at tribunal are required to pay disputed tax upfront.
‘This applies to a narrowly defined and targeted group and is designed to change the economics of entering into avoidance schemes and tackle a stockpile of existing cases where HMRC has won tribunals against schemes but investors are holding on in the hope that it will be a long time before we get round to their case,’ Harra said.
Harra told the committee that over the next 18 months around 43,000 people, with an average income of £260,000, will be contacted under the scheme, which will also offer time-to-pay arrangements. He said the process for handling accelerated payments would be ramped up slowly, to allow HMRC to assess response levels, likely challengers and the resources it needed to deploy.