The Institute’s Northern Ireland Tax Committee recently submitted a response to the HM Treasury consultation Direct Recovery of Debts (DRD). In its response the Institute reiterates that in general it is supportive of proportionate measures which help ensure that all taxpayers pay the correct amount of tax properly due and owing. The observations in the submission are thus made in that context.

As reported in the June issue of tax.point Budget 2014 announced the new DRD power that will allow HMRC to recover tax and tax credit debts directly from debtors’ bank and building society accounts, with the aim of modernising HMRC’s collection of debt and bringing the UK into line with other countries. A similar power is already available in Ireland to the Revenue Commissioners.

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

Some key points of the response are as follows:

• There are concerns about the lack of detail provided in relation to each of the specific safeguards outlined in section 4 of the consultation document; in their current format the proposed safeguards are insufficient to protect taxpayers.
• Before any hold is placed on a taxpayer’s account they should be issued with a final warning letter and provided with a minimum 30 day period from the date the final warning letter is received to either formally appeal the proposed hold/potential attachment or pay HMRC by other means.
• A copy of this final warning letter should also be sent to the taxpayer’s agent if one is appointed.
• Seeking to recover tax debt from joint accounts is fraught with difficulty and should be avoided at all costs for a number of reasons.
• DRD is intended to only be used for “established” debts, however it is not clear precisely how debts will be established.
• As part of the process HMRC will review the debtor’s objection. This review should be carried out by a senior HMRC officer previously uninvolved in the debtor’s case. A taxpayer should have the right to formally appeal this decision thereafter.
• The consultation document fails to deal in any great detail about the potential such a power has for error. Possible financial and reputational damage ensuing from the use of DRD at all stages of the process also has not been addressed.
• In some of those jurisdictions where a similar power exists, preference as a secured creditor still exists for tax debt making a direct comparison inequitable.
• Thus, there is a concern that HMRC may seek to use DRD as a form of Crown preference.

In conclusion, this power has the potential to gravely impact on the relationships businesses/taxpayers have with their banks and other creditors. Comparable powers of debt recovery exist in other jurisdictions. Meaningful lessons can be learned from bitter experience in those jurisdictions; this power should never be exercised such that it damages a business/taxpayer beyond all possible repair.

The full text of the submission is published on here.