Direct Recovery of Debt

15 July 2015

Draft regulations - Enforcement by Deduction from Accounts (Information) Regulations 2015 have been published which prescribe what information a deposit-taker must provide to HMRC to allow them to determine whether Direct Recovery of Debt action is appropriate for the relevant debtor.

Schedule 8 of the Finance Act 2015 allows HMRC to enforce the collection of debt directly from the accounts of the relevant debtor – the direct recovery of debt (DRD). HMRC relies on information provided by deposit-takers to carry out this power. The process involves HMRC sending an information notice to a deposit-taker, to determine what assets are held by the debtor with the deposit-taker (and in which accounts). Subsequently, HMRC may issue a hold notice to the deposit-taker, requiring a hold to be placed on assets for transfer to HMRC pending statutory rights of objection (to HMRC) and appeal (to the County Court) by the debtor.

The instrument only applies to deposit-takers who are required to provide prescribed information in complying with an information notice or hold notice provided by HMRC. Such deposit-takers are not anticipated to be small or micro-businesses.

Information is only prescribed under these Regulations to the extent that it is in the possession of, or immediately available to, the deposit-taker at the time they receive the information notice or hold notice.

The information required is:

name and address;
any national insurance number;
any email address;
any telephone number;
the fraction of the balance of the joint account to which the person is entitled, where applicable.

Background

At Budget 2014 the Chancellor announced the Government’s intentions to introduce new powers to allow HMRC to secure payment of tax and tax credit debts directly from debtors’ bank and building society accounts in credit – the direct recovery of debt (DRD). This is to make the tax system fairer by targeting those who have the means to pay what they owe but choose not to do so, despite repeated contact from HMRC.

Following public consultation, the Government introduced a number of additional safeguards to strengthen the measure and ensure that it only affected the intended minority of debtors with the means to pay what they owe. These safeguards were set out in the Government’s consultation response of 21 November 2014 and included a guaranteed face-to-face visit with every debtor whose debts are considered for recovery through the measure.

HMRC will only take action against debtors who owe at least £1,000 of tax or tax credit debt. HMRC will always leave a minimum aggregate of £5,000 across debtors’ accounts, and will only put a hold on funds in affected accounts up to the value of the debt.

A public consultation document for DRD was published on 6 May 2014. The formal consultation ran until 29 July 2014. The Government published its response on 21 November 2014, and draft primary legislation was published on 10 December 2014 for further consultation.

The Government will publish guidance on DRD to help debtors affected by the measure, deposit-takers in receipt of an information or hold notice, and other interested organisations, understand the processes involved. This will include an explanation of the responsibilities a deposit-taker has in carrying out instructions received from HMRC, and the rights of objection and appeal available to a debtor to whose accounts DRD has been applied.

A Tax Information and Impact Note covering this instrument have also been published.

DRD will be kept under review through regular communication with affected taxpayer groups. The Government has committed to an HMRC-led review of the measure after two years of operation, to be laid before Parliament.

Related CIPP news