Accountants Raise Concerns Over Proposed HMRC Direct Debt Recovery Proposals.

Have you ever heard of DRD? The chances are probably not – well, not yet at least.

However, if the proposed powers originally announced in the Budget in March are adopted, then if you owe more than £1,000 in outstanding tax HMRC will be able to take that money directly from your bank or building society account or ISA – whether you agree or not.

Understandably, this draconian proposal has got a lot of people rather hot under the collar, particularly accountants.

So what exactly is DRD? Well, direct debt recovery gives HMRC the power to recover tax and tax credit debts directly from debtor’s accounts without having to pursue the matter first through the courts. There are also further proposals to extend the recovery and include money from joint accounts in the future. It is estimated that if these debt recovery powers are introduced they could affect around 17,000 taxpayers. The proposed powers follow on from proposal announcements in the Autumn Statement, 2014 Budget and the Finance Bill, which will allow HMRC to require an advance payment of tax in connection with:

  • taxpayers involved with tax schemes similar to one defeated in the courts.
  • taxpayers who have been issued with a GAAR notice.
  • taxpayers with a DOTAS scheme.

The new proposed powers will only be used if debtors owe HMRC in excess of £1,000, and they have ignored repeated contact for prompt payment from the tax authority. Are there any restrictions on how much HMRC can recover directly from accounts? Well, HMRC has promised that it will ensure that a minimum of £5,000 will be left across all accounts.

Understandably a lot of interested parties have expressed their concerns about the proposed powers, not least Parliament itself. The Treasury Select Committee has gone on record saying:

“Giving HMRC this power without some form of prior independent oversight — for example by a new ombudsman or tribunal, or through the courts — would be wholly unacceptable.”

Accounting bodies have also voiced their concerns. At a recent Institute of Chartered Accountants in England and Wales’ (ICAEW) Wyman Symposium almost two-thirds (65 per cent) of attendees disagreed with the new proposed direct debt recovery powers. 53 per cent of the Symposium’s attendees felt direct debt recovery was ‘wholly unnecessary’, while a further 17 per cent felt it required significant alteration.

Jolyon Maugham, tax barrister of Devereux Chambers, an advocate of the proposal told the symposium:

“It only relates to tax that is due, hasn’t been paid and which the taxpayer isn’t disputing.”

However, he added that it was the lack of accountability that worried accountants:

“Most arguments against DRD boil down to HMRC’s lack of ability in administration to safely carry it out.”

Stephen Herring, head of taxation at the Institute of Directors, addressed the conference, saying:
“We have to find a way of getting people to pay the tax they owe. Similar powers are used in Australia, Sweden and USA and there are few examples of misuse.”

However, he added that the removal of the courts from the debt collection process was a cause for concern for many practitioners, in particular given the fact HMRC already can collect debts from bank accounts if it goes through the courts.

For further information about DRD and how it could impact on your business contact Steven Glicher accountants on 0161 485 8007.

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