The move has een criticised by the Low Incomes Tax Reform Group (LITRG) for failing to provide adequate safeguards against possible abuse.  

The consultation, Direct Recovery of Debts (DRD), describes a new power which will allow HMRC 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.

Debts will only be suitable for DRD where there is a tax or tax credit debt of £1,000 or more due to HMRC, which could be owed against just one tax or could be made up from smaller debts owed across a range of taxes, including National Insurance Contributions.

In his introduction to the consultation David Gauke, Exchequer Secretary to the Treasury 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.’

However Anthony Thomas, LITRG chairman, said: ‘While the published document reveals some safeguards that may be generally effective in preventing HMRC from using their new power inappropriately, it is far less clear just what remedies there will be for those – hopefully few – occasions when the safeguards are indeed breached, whether accidentally or by oversight.’

According to the consultation document, before getting to the stage where DRD is applied, a debtor in self-assessment who has a good history of compliance will typically have been contacted by HMRC a minimum of four times and up to nine times in total, including by letter and telephone.

HMRC will then seek to establish that the debtor has the funds to pay and will ask their bank or building society (‘deposit taker’) for details of all their current and savings accounts, along with details of transactions within a specified period.

The tax authority says this process will ensure it does not put a hold on money that will be required by the debtor to pay essential business or household expenses. Once the deposit taker has placed a hold on the debtor’s funds, HMRC will write to the debtor to inform them of the action it has taken and full details of all the payments that will be taken from their account. The deposit taker will also be asked to contact the debtor, repeating the details of how to get in touch with HMRC.

Thomas said: ‘If strictly observed, the safeguards and conditions as set out should be broadly effective but if they are disregarded in any particular, vulnerable taxpayers will suffer – and that is far too great a risk. Should that happen, one would expect to see robust remedies to reverse the impact of any misuse of the power, and provide for compensation. In fact, all the consultation document proposes is the right for an aggrieved debtor to object to HMRC within a timescale that is so short few will be able to comply with it, combined with a vague and unspecified assurance of a judicial appeal.’

‘We strongly urge HMRC to think again about this aspect of their proposals as the application of the rule of law in this country is fundamental to citizens being treated properly in a civilised society. The right of access to the courts should never be denied, particularly not in the name of administrative efficiency,’ Thomas stated.  

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.

The closing date for comments on the proposals is 29 July 2014 and feedback should be sent to [email protected]. The consultation document is here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/308511/Direct_Recovery_of_Debts__2_.pdf