In the 2014 Budget, George Osborne said: “We will give HMRC modern powers to collect debts from bank accounts of people who can afford to pay but have repeatedly refused to, like most other western countries.”
Not many noticed this short comment. The phrasing seemed puzzling at the time, but the full Budget papers revealed a little more: “The government will modernise and strengthen HMRC’s debt collection powers to recover financial assets from the bank accounts of debtors who owe over £1,000 of tax or tax credit debts, have the financial means to pay and have been contacted multiple times by HMRC to pay. A minimum of £5,000 will be left across debtors’ accounts. This brings the UK in line with many other tax authorities.”
We eagerly awaited the full consultation, and in May we got to see the devil in the detail.
It is not often you see Liberty, the Money Advice Trust, the British Bankers’ Association and accountancy bodies like the Association of Chartered Certified Accountants and the Chartered Institute of Taxation join together to criticise government policy, but this proposal concerned not only accountants but also lawyers, solicitors, debt advisory specialists and IFAs.
Over the summer, HMRC’s plans to extend their powers to allow them to “smash and grab” money from people’s bank accounts caused a perfect storm of concern and criticism.
We at ACCA were happy to add our name to the list of organisations uneasy about the proposals. We share a sense of trepidation about HMRC’s power to raid bank accounts for money it decides it is owed. In our response to the consultation, we said, “We remain to be persuaded”, and this is still the case. There is widespread concern that the proposed measures are unnecessary. Only the transparent demonstration of these measures will answer the critics effectively.
Unconstitutional
Even the Financial Times, in its editorial of 18 August, said HMRC’s proposals are a step too far. The plans border on unconstitutional. But we do not see any signs from the government of backtracking. In fact, the whole development has felt like a fait accompli, particularly during the Treasury select committee hearing of 8 July when it was explained that HMRC had simply asked for these powers. But just because something is the best option for HMRC does not mean it works for everyone else.
So, who will be affected by the taxman’s proposals? The short answer is individuals and small businesses.
Of course, it is fair that those who do not pay tax due are pursued promptly through legal measures. However, the impact of the direct recovery of debts on lower-income households need to be considered more carefully, especially as HMRC is also proposing use of this recovery power for tax credit debts, joint accounts, Isas and accounts belonging to children where the taxpayer who they are after is a bare trustee.
The scope for problems is greater still at the most vulnerable end of the social scale. There must be safeguards in place to ensure HMRC is offering a helping hand where necessary, not making difficult situations worse.
Funding
HMRC needs to be properly funded to perform its role as a credible, effective tax administration worthy of its reputation as a world leader.
It has indicated that all cases will be operated by a dedicated specialist team. If HMRC’s estimates are accurate, this team will deal with 17,000 cases a year – around 60 every working day. Is it sufficiently resourced to manage such a workload?
Chasing debts would not be an issue if the tax administration were properly staffed. This work takes trained, highly motivated and properly supported individuals who fully understand the extents and limits of their powers and the impact their actions could have on taxpayers. The gulf between this ideal and HMRC’s actual performance is a matter of public record. In recent years, we have seen cuts in staffing that have concerned the unions and resulted in strikes.
Blame game
HMRC’s proposed measures are not the best option for pursuing outstanding tax debts. Improving the administration of the court system would be the best solution: this would reduce the costs and delays associated with the enforcement of HMRC’s existing rights.
If HMRC is to be granted the discretionary administrative power to access private bank accounts with no judicial supervision, it must be exercisable only when there is clear legislative intent and when no further judicial involvement would ordinarily be contemplated.
All appeal rights must have been explored and exhausted, and safeguards must be incorporated and implemented to ensure that no further examples can arise of HMRC withdrawing funds from UK taxpayer’s accounts without their knowledge or consent, or seeking to rely on HMRC’s own dilatory conduct to deprive taxpayers of their appeal rights.
Of course, the question remains whether HMRC actually needs these power at all.
It certainly should not. However, given the cuts to HMRC and the legal system, the existing mechanisms are no longer practicable. We are caught in something of a blame game, where HMRC lambasts the court system for being slow and expensive. If this is the case, the correct answer – as I have said – is to improve the operation of the court system, not bypass it altogether.
Reform
What is the alternative? The answer could be extending the reach of the tax tribunals, or perhaps introducing review by a judge or a master in chambers.
The key issue is this: once one arm of government has appropriated the right to take funds without supervision simply because it says supervision is inefficient, there will be no bar in principle to other executive agencies requesting, and receiving, similar powers.
With parliament having returned from its summer recess, ACCA has written to constituency MPs to highlight that families, individuals and small businesses in their constituencies must be aware of the measures that are being pushed through by Whitehall.
Risky business
While the thinking behind these drastic powers is logical – to acquire taxes from those trying to evade paying them – many innocent people risk having money taken from their bank accounts with no recourse for redress other than through the courts. This will take time and cost them money – even if HMRC has got it wrong.
So, along with organisations including the Law Society and the Federation of Small Businesses, ACCA believes this is wrong. No government body should be able to take people’s money directly from their bank accounts. After all, that money could be someone’s life savings, a university fees fund for their children or an account used to pay staff in a small business.
At present, HMRC must get permission from the courts to take taxes from people who do not pay. This protects those who are wrongly accused from having their money taken at will by government authorities. We at ACCA want local MPs to protect the rights of their constituents and oppose these proposals.
It seems unlikely there will be any rapid change of heart from the government, whatever the outcome of future elections. We will continue lobbying against these unconstitutional plans.
Chas Roy-Chowdhury is head of taxation for ACCA
