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May 14, 2014

HMRC's Proposal to take Payments Direct from Taxpayers Bank Accounts

HMRC have released a consultation document regarding the controversial proposal set out in the Budget 2014 which would allow HMRC to take payments of outstanding tax liabilities directly from taxpayer's bank accounts.

HMRC believe that Direct Recovery of Debts (DRD) is likely to affect 17,000 taxpayers annually with an average debt being recovered of £5,800.

Under the proposals, where taxpayers owe tax of more than £1,000 and have £5,000 or more in their bank accounts, HMRC will have the power to take the sums owed from bank/building society accounts including ISAs.

HMRC believe that under their current processes, taxpayers are contacted about outstanding debts between 4 and 9 times.  During this time taxpayers may engage with HMRC to either appeal the amount of the tax or request time to pay arrangements.

Before HMRC can take the funds from the taxpayers bank account, HMRC will write to taxpayers to let them know about the proposed action and give them 14 days to contact HMRC.  During this time the bank will place the funds on hold to prevent them being withdrawn by the taxpayer.

HMRC will also be able to target joint accounts (up to a maximum of 50% of the credit balance) which could result in situations where a debt owed by one party is suffered by the joint holders of the account who may have no knowledge of the debt until they are informed that a hold has been placed on the funds.

In terms of safeguarding taxpayers against financial hardship, HMRC propose that a minimum amount of £5,000 must be left in the taxpayers accounts, in addition HMRC will obtain 12 months worth of banking information to assess seasonal expenditure, normal spending and trading expenses to see if this amount should be increased.

The plans have been heavily criticised by the Commons Treasury Committee who believe that the risk of errors by HMRC is too great.

HMRC's consultation can be accessed at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/309624/Direct_Recovery_of_Debts.pdf

Responses to the consultation are requested by 29 July 2014.


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