Direct recovery of debts: further concerns published
04 August 2014
Following the end of the consultation period for HMRC’s proposal to take unpaid debts direct from bank accounts, further concerns have been published.
The CIPP response to the consultation has already been published here
The Association of Chartered Certified Accountants (ACCA) have specifically argued for payroll accounts to be excluded from the plan. They say that “drastic plans to give HMRC the power to raid businesses' and individuals' bank accounts at will to take taxes owed could leave innocent employees without wages unless safeguards are put in place to protect payroll accounts.”
ACCA says that any legislation giving HMRC these bank raiding powers - officially known as direct recovery of debt (DRD) - should explicitly exclude bank accounts which are primarily used for payroll purposes, otherwise innocent employees won't get paid if HMRC raids their employers' accounts.
Chas Roy-Chowdhury, head of taxation at ACCA, said: "HMRC has said it would leave £5,000 in any bank account it chooses to raid, and in the short term that should be sufficient for most individual taxpayers to avoid starvation. However, that £5,000 won't last long if it is a business's payroll account with staff feeling the brunt of any tax raid by HMRC. For any business with a payroll in excess of £60,000 (including employers' NICs) £5,000 will cover just one monthly salary run.
"HMRC has said itself that destroying a business will have a detrimental effect on the economy, yet rendering a business unable to pay salaries will have disastrous consequences. Non-receipt of a salary payment is likely to trigger knock-on effect for employees, as increasingly monthly outgoings such as mortgages and council tax are timed to coincide with that regular monthly income.
"The legislation should include a specific safeguard to prevent DRD being operated directly against accounts used primarily for payroll purposes."
ACCA says that although the likelihood of HMRC needing to exercise the powers against a payroll account should be minimal, the safeguard is still essential as a symbolic deterrent to HMRC, strengthening the imperative to perform effective due diligence before exercise of the powers.
Chas Roy-Chowdhury said: "If these powers, which no one wants to come into effect, are nevertheless going to make it onto the statute books, let's not take any chances. These are very invasive powers that cut across constitutional principles. Leaving the door open now for HMRC to extend powers or stretch them will have detrimental impact of businesses and their employees. It's better to build in the safeguards now to avoid problems in future for payroll."
The Sunday Times has also published the following letter from organisations representing consumers, businesses, banks, building societies, lawyers and accountants about the proposal generally:
We support the government’s drive to clamp down on those who can pay their taxes but do not. However, we are deeply concerned about plans by HM Revenue & Customs (HMRC) to take tax debts directly from people’s accounts without the judicial oversight that is a crucial safeguard at present.
These plans risk causing damage not to the people being targeted but to the innocent and the vulnerable. Too often HMRC makes mistakes in its dealings with taxpayers. Its plans to contact potential debtors as proposed may not be enough to reach vulnerable people with certain health conditions, such as mental incapacity.
The inclusion of tax credit overpayments, which are difficult to assess and prone to official and claimant error, will affect families on low incomes. Where innocent small businesses are incorrectly targeted, their cash flow would be reduced, putting their operations at risk.
If the new powers are implemented as planned there will be no judicial oversight before HMRC partially freezes accounts and seizes funds. Allowing people to appeal after the event is far too late in the day and could mean they are no longer able to afford the necessary legal assistance.
We ask the chancellor to abandon his current proposals and consider a better way to achieve his aims while ensuring the proper protections for citizens are firmly in place. These planned measures are a power too far for an error-prone HMRC and will damage public trust in the tax system.
Robin Fieth, Building Societies Association, Mike Cherry, Federation of Small Businesses, Shami Chakrabarti, Liberty, Gary Richards, The Law Society, Frank Haskew, Institute of Chartered Accountants in England and Wales, Chas Roy-Chowdhury, Association of Chartered and Certified Accountants, Anthony Browne, British Bankers’ Association, Joanna Elson, Money Advice Trust, Anthony Thomas, the Low Incomes Tax Reform Group