Should HMRC be allowed to collect tax debts from bank accounts?

Last Wednesday’s Budget included a proposal to allow HMRC to recover tax and tax credit debts of £1,000 or more directly from the taxpayer’s bank and building society accounts, including ISAs.

HMRC can already seize goods, or take proceedings for recovery of income tax in the courts, and interest is charged on tax paid late. But the proposal for “direct recovery” of debts has caused some alarm. We are promised a consultation but the idea is a worrying one, particularly in relation to tax credit claimants.

The government has said at least £5,000 will be left for the taxpayer, and the new power – to be introduced in Finance Bill 2015 – will be “subject to rigorous safeguards”. BBC News quoted an HMRC spokesman as saying the measure was targeted at “people who have, on average, over £20,000 in their accounts but are refusing to pay their debts”. He added that the power “will only affect a tiny number of debtors whom we have contacted a minimum of four times to ask for payment”.

But the BBC also quoted Chas Roy-Chowdhury, head of taxation at ACCA, as saying that if a business’s bank account was raided, it may find there was not enough money to pay staff.

In a submission on Friday to the House of Commons Treasury Committee, the Chartered Institute of Taxation warned that the announcement gave no details of judicial or other safeguards (other than the £5,000 rule) to protect taxpayers on low incomes struggling with debt.

The CIOT said that the power “could actually discourage compliant behaviour”.

It added: “People who owe HMRC £1,000 or just over may simply be people on low incomes or low wages who have come into difficulties and are in debt not only to HMRC but also to others, notably public utilities. To let HMRC raid their bank accounts without safeguards or recourse to the courts – or with inadequate safeguards – would be to flout the rule of law in a manner unworthy of a public service body. It is not the same as seizing physical goods, it is depriving the debtor of the very means to live.”

The idea may be short lived. Based on what we have seen so far, I hope so.