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A consultation on the plans published in May included a number of guarantees to provide certainty to taxpayers, such as only applying the powers to established debts and only targeting debtors who have repeatedly ignored attempts to make contact.
However, many professional and representative bodies, felt the safeguards did not go far enough and that tax-payers, particularly those who were most vulnerable, might find themselves at an unfair disadvantage.
The Government has now said that it will further strengthened the safeguards which will apply to the limited use of DRD. These include:
- Guaranteed visits to debtors from an HMRC officer to meet them face-to-face. This will ensure that everyone subject to DRD will have had a chance to challenge and settle their affairs – whether by paying in full or setting up a payment plan – and that DRD will only apply to those who have chosen not to do so. The visit will also allow HMRC to identify vulnerable members of society to provide them with appropriate support.
- Establishing a new, specialist unit to deal with cases involving vulnerable members of society, as well as providing a dedicated DRD team and helpline.
- Ensuring that judicial oversight of the process is enshrined in legislation, by allowing for appeal to the County Court.
- Putting a hold on debtors’ accounts and giving them 30 days – more than twice as long as previously planned – to contact HMRC and arrange payment of the debt or object to the use of DRD, before any money is taken.
- Further new safeguards relating to transparency, governance and a phased implementation of the DRD powers.
Levelling the playing field
These are all in addition to existing guarantees, such as only taking action against those with over £1,000 of tax or tax credits debt, to always leave a minimum of £5,000 across debtors’ accounts, and to only put a hold on the funds in the affected account up to the value of the debt.
Financial Secretary to the Treasury David Gauke said: “This is about levelling the playing field. The vast majority of people pay the tax that is due, on time, but there is still a very small minority who try to gain an unfair advantage by persistently refusing to pay what they owe, despite being able to. These are the people who will be targeted by the powers for the direct recovery of debts owed to the Exchequer.
“We already set out robust safeguards to protect vulnerable debtors in our original Direct Recovery of Debts proposals, but feedback from the consultation process told us we could do more to make sure this only catches those who are playing the system.
“We’re strengthening the guarantees we can offer taxpayers that the powers will only be used when debtors have consistently refused to talk to HMRC and settle their debts, and their use will be subject to the toughest scrutiny and oversight possible.
“We’re far from the first country to take this step – many other tax authorities already use similar powers routinely and responsibly as a crucial lever for ensuring their Government is paid what is owed.”
HMRC says that it will continue to work proactively with key stakeholders, such as professional groups and those representing vulnerable customers, on the detail of the DRD process.
HMRC estimates DRD will apply to around 17,000 cases a year, with the average debt of those affected £5,800. Around half of these cases will involve debtors with more than £20,000 in their bank and building society accounts.
Rule of law
The Chartered Institute of Taxation (CIOT) has welcomed the decision to revise the proposals for the direct recovery of debt from taxpayers’ bank accounts. Particularly as the safeguards being introduced include a guaranteed face to face meeting with targeted taxpayers, an appeal process to county courts by taxpayers disputing DRD and that funds would be returned to insolvent taxpayers all of which reflect the concerns of the CIOT.
The CIOT had earlier expressed alarm that the original plans would have resulted in HMRC assuming wide-ranging powers undermining due legal process in the collection of debt.
CIOT President, Anne Fairpo, said: “Throughout the consultation process, we have maintained that the rule of law should not be undermined. It is for this reason that we are especially pleased to see changes allowing appeals to the county court.
“If an objection to DRD is made by the taxpayer, it will be internally reviewed by HMRC and the time limit to request a review has increased from 14 to 30 days. If the review is denied, the taxpayer will be given a further 30 days to appeal to the county court; this is the kind of external oversight we have been seeking.
“If the proposed changes are reflected in legislation, they will go a significant way to allay our concerns. Importantly, before DRD is implemented, there will now be an obligatory face to face meeting between taxpayer and a Revenue representative. This should mean that they are dealing with the right person and that the debt in question has been acknowledged providing clarity for all. An additional benefit of these meetings is that it will give HMRC the opportunity to identify vulnerable taxpayers and transfer them to a part of HMRC where they will be more effectively dealt with. We regard these meetings as crucial as the vulnerable are unlikely to have the kind of knowledge to deal with these matters alone.
“The legislation for DRD will not be in the Finance Act that is likely to be passed immediately before the 2015 election. It is likely to be in the Finance Bill immediately after the election and we welcome this as it will ensure there is adequate time for debate of this important measure.
“If money was taken away under DRD and it turns out the taxpayer was insolvent, the intention is to return the money to the insolvency. HMRC will also be working with the voluntary sector and professional bodies to produce correspondence explaining to taxpayers the merits of seeking the advice of tax professionals.
“We will be looking closely at the detailed legislation to ensure that these safeguards have been put into the primary legislation.
“These revisions are proof that the Government has listened to, and taken on board, the concerns of interested stakeholders and is evidence of the merit of sustained engagement.”
Vulnerable debtors
The Low Incomes Tax Reform Group (LITRG) also welcomed the Government’s willingness to listen to the Group’s objections to the original proposals and believes that if the current plans go forward as outlined, vulnerable debtors should be safe from the use of the new power.
But they issued a cautionary note that they wished to have sight of the draft legislation, and in particular the definition of the term ‘vulnerable’.
LITRG along with other professional bodies strongly criticised the proposals on the grounds that to exclude the jurisdiction of the courts was unconstitutional, while the safeguards were wholly inadequate, insufficient to protect vulnerable debtors, and failed to distinguish the ‘won’t pays’ from the ‘can’t pays’.
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“Our primary concern is that the vulnerable taxpayer or tax credit claimant on a low income who gets in a muddle should not be caught up in a process designed to target those who have the funds to pay their tax on time but who resolutely refuse to do so. We were also greatly concerned that taking funds out of someone’s bank account without authorisation by the courts ran counter to the rule of law.
“The County Court procedure contained in the revised proposals provides the necessary judicial oversight before any money is taken – although not before the account is first frozen. The undertaking not to apply DRD before a face-to-face meeting with the taxpayer, and not to apply it at all where the taxpayer is adjudged vulnerable, is undoubtedly a step in the right direction and should prove adequate protection for that group of individuals.
“But importantly, these improved safeguards must be adequately set out in primary legislation. It is no good writing them only into guidance, as guidance can always be changed without reference to Parliament. We understand draft legislation will be published in due course, and we shall examine it keenly to ensure that it does all that we expect it to do.”
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Susie Hughes © Shout99 2014
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