The Treasury select committee has warned that proposals announced in the Budget to give HMRC powers to access taxpayers' bank accounts to recover outstanding tax debts ‘could develop into a return to Crown preference by stealth’ and required stringent oversight to prevent abuse
“The Treasury and HMRC need to make a better case as to why such powers are needed above and beyond the system of court orders that already exists. They also need to set out in detail what safeguards, judicial oversight and rights of appeal they intend to put in place if such a measure were to be introduced so as to ensure that the rights of taxpayers are protected.”
Earlier this week HMRC announced it was consulting on the plans to introduce Direct Recovery of Debts (DRD), allowing MRC to recover debts from the accounts of debtors whom it judges are able to pay what they owe but have chosen not to do so, and who have not responded to HMRC’s attempts to contact them and collect the tax due.
Yesterday the Treasury select committee said these plans ‘will need further and extensive examination’ and noted that: ‘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.’
HMRC estimates that DRD will apply to around 17,000 cases a year for debtors owing an average of £5,800 in tax and tax credit debts. It says around half of the debtors affected have more than £20,000 in their bank and building society accounts and ISAs.
In its assessment, the committee stated: ‘This policy is highly dependent on HMRC’s ability accurately to determine which taxpayers owe money and what amounts they owe, an ability not always demonstrated in the past.’
The committee disagreed that the proposals are similar to the Department for Work and Pensions' (DWP) powers to take money directly from people’s bank accounts to pay child maintenance. It said that unlike DWP, HMRC would be acting not as an intermediary between two individuals but in pursuit of its own objective of bringing in revenue for the Exchequer.
Andrew Tyrie, select committee chairman, said: ‘The proposal to grant the power to HMRC to take money directly from people’s bank accounts is very concerning. People should pay the right amount of tax. But HMRC does not always ask for the right amount. Some taxpayers may find money taken from their accounts that later should be paid back. That would be unacceptable.’
Tyrie said prior independent oversight would be required before such exceptional powers could be used and that in order to ensure HMRC cannot act erroneously with impunity, the government should consider additional safeguards including the awarding of damages in addition to compensation, and disciplinary action in cases of abuse of the power.
The committee added that the ability to have access to millions of taxpayers’ bank accounts increased the risk of fraud and error, and said this should be covered by the consultation.
Tyrie indicated that the Treasury select committee intend to take evidence on plans for DRD shortly.
It is also considering a post-implementation review of HMRC’s powers following the merger of HM Customs and Excise and the Inland Revenue in April 2005 ‘to ensure that all the powers HMRC has at its disposal remain relevant and are no more than are sufficient to enable HMRC to achieve its objectives’.
However, there is widespread concern about the measures with a number of accountancy bodies coming out against the measures.
Frank Haskew, head of ICAEW’s Tax Faculty said: 'The report from the Treasury Select Committee reflects the considerable concern that both taxpayers and accountants have about proposals to allow HMRC to take money directly from the bank accounts of those owing tax.
'Such powers are unprecedented in the UK and, as the Treasury Select Committee has said, could be open to mistakes and misuse. Fundamentally, we believe that money should only be taken from someone’s bank account by agreement or under the supervision of a court.'
The Treasury has tried to reassure taxpayers and the profession that the measures will not be punitive. In his introduction to the consultation David Gauke, Treasury minister, said: ‘We must ensure that there are strong safeguards in place so that this is only targeted at the truly non-compliant. Furthermore, we are proposing to leave a minimum of £5,000 after the debt has been recovered, ensuring that this does not create unnecessary financial trouble for those affected. We are also proposing additional checks and procedures.’
