As announced in last month’s Budget, HMRC is seeking new powers to recover debts direct from the bank accounts of debtors. The Government believes that some taxpayers and tax credit claimants who owe monies to HMRC have enough in their bank accounts to clear their debts but choose not to pay, despite having been chased for payment by HMRC. A consultation known as “Direct Recovery of Debts” (DRD) is underway, which is expected to see such powers enshrined in legislation sometime in 2015, bringing the UK tax authorities into line with many other advanced economies where similar powers are used to ensure the Government is paid what it is owed.
The proposed new powers will be targeted only at the truly non-compliant and not at vulnerable members of society, namely those taxpayers who owe more than £1,000 and who will have more than £5,000 in their bank accounts after the debt has been paid. The Government estimates that 10% of taxpayers in self-assessment file late or not at all, which can create a debt to HMRC, though it is expected that DRD will only apply to around 0.2% of taxpayers in the self assessment taxpayer population.
Additionally, HMRC will look to recover sums owed by way of tax credits that have been overpaid, unpaid National Insurance Contributions and interest and penalties owed by the those who have not paid on time.
Under existing legislation, if a taxpayer does not pay then HMRC can enforce payment by taking control of certain types of goods, without the need to apply to a court. However, goods in a debtor’s possession are not always owned by the debtor and the process to realise value from goods is time-consuming and costly. Furthermore, as HMRC has no power to recover cash directly without prior authority from a court, the debtor has sufficient time to dispose of their assets and make recovery of the debt even more difficult. It is hoped that DRD will provide a remedy that is quicker, lower cost and less invasive.