HMRC Debt Recovery Powers

HMRC is set to gain powers to collect tax debts directly from taxpayers’ bank accounts under the Direct Recovery of Debts (DRD) rules, Finance Act 2015. This is likely to be late September or early October 2015.

The aim of the legislation is to target taxpayers who won’t pay rather than those who can’t pay. The legislation also covers Accelerated Payment Notices.

The DRD rules will work as follows.

Established debt

HMRC must have established a debt is owed by the taxpayer to HMRC of at least £1,000. HMRC have said they will contact the taxpayer at least four times about the debt before commencing the DRD procedure. One of those occasions will be a face-to-face meeting with the taxpayer, although some critics of the new legislation are saying it can’t be enforced by a court and it will be entirely dependent on HMRC’s discretion.

Information Notice

HMRC will send the bank an “Information Notice”, which requires the bank to provide details of the accounts held by the taxpayer. The bank must supply the information within 10 working days. The taxpayer or their agent won’t be sent a copy of this notice, so will not know about this action unless the bank tells them.

Hold Notice

HMRC sends the bank a ‘Hold Notice”, which requires the bank to freeze the taxpayer’s account in respect of a specified amount. At least £5,000 must be left available to the taxpayer across all his accounts. The bank must confirm to HMRC whether the sum specified is in the taxpayer’s accounts. When HMRC receive this confirmation from the bank it must send the taxpayer a copy of the hold notice. The bank is also permitted to inform its customer (the taxpayer) at this point.

Objections and appeals

The taxpayer, or anyone with an affected joint account with the taxpayer, can lodge an objection with HMRC against the Hold Notice. HMRC must respond to the objection within 30 working days and either dismiss the objection, cancel or alter the Hold Notice. Once HMRC has dealt with the objection the taxpayer can appeal against the hold notice to a County Court.

Deductions Notice

Once the period for objections and appeal against the hold notice has expired, HMRC will issue a Deductions Notice to the bank, requiring the bank to pay the required sum by a date specified. This notice must be copied to the taxpayer and to anyone who has an interest in the affected accounts.

Penalties

There are penalties for banks who fail to comply with the notices issued by HMRC.

As is clear, the government plan to seriously clamp down on tax payment avoidance as part of their strategy to recoup funds into the Treasury.

If a taxpayer can’t pay, that will be a different story, but for those who are avoiding payment, despite there being funds available, HMRC now have the power to intervene remotely.