Following delivery of George Osbourne’s new budget, there has been widespread concern regarding the fact that HMRC is to be furnished with new powers to seize debts directly from our bank accounts.

Many have gone so far as to say that the policy is tyrannical and deprives us of our right to dispute unpaid tax claims set out on the Magna Carta. However, whether these powers pose a serious threat the solvency of individuals and businesses seems somewhat unclear.

The legislation amounts to the following:

  • HMRC will have the ability to collect debts of more than £1000 from current accounts and savings accounts.
  • The legislation will be applicable from 6 April 2016 in England, Wales and Northern Ireland.
  • A minimum of £5,000 across all the debtor’s accounts must be left untouched.
  • A face to face meeting with the debtor must be arranged to discuss the debt and offer alternative payment options, such as a TTP (Time To Pay arrangement).

Clearly, HMRC have plenty to gain from the proposed powers. The legislation is expected to raise around £100 million a year, without the need to go through the Courts. Last year, £6.8 million was spent on external debt collection companies, some of which could be avoided if direct recovery is made possible. Also in place is the ability to use bailiffs to remove personal assets to cover debts owed to HMRC; a stressful and unpleasant process for debtors. Not only would HMRC benefit in terms of cost savings, but could also avoid the inevitable backlash that comes with the use of debt collection agencies and bailiffs, whose tactics are sometimes perceived as overly aggressive.

There are, however, concerns that HMRC does not have the administrative capacity to effectively carry out the new scheme, and that collecting large numbers of small debts will be beyond its logistical capabilities; which could lead to errors in the implementation of the new powers.

A real concern for small businesses is that the seizure of money directly from their accounts could cause huge cash flow issues. Whilst leaving a £5,000 balance in a personal bank account may not seem completely unreasonable, by comparison this is an extremely small amount for a business, which is likely to have staff, invoices and all manner of other expenses to pay. Not only could this lead to insolvency in a business which might otherwise be perfectly salvageable had an alternative arrangement been made with HMRC, it could also leave employees and other creditors out of pocket.

We would expect that in most cases an agreement should be able to be reached with HMRC, with direct recovery only being used in the worst cases. Anyone who is being targeted under the new rules should, in theory, be given plenty of prior warning including a face to face meeting, however, HMRC are not notorious for their accuracy in reclaiming unpaid taxes. Businesses should therefore be well aware of these risks and seek advice if they believe they have any debt.

Charlotte Tasker
PD Executive

 

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