HMRC debt recovery powers will need to be ‘bomb-proof’

IT WAS SOMETHING of a slow burner, but once people noticed HMRC may be granted the power to directly deduct tax owed from debtors, the concerns began to surface.

Ethical issues were raised over the legitimacy of such a move, while others noted that, alongside its ‘pay up first’ policy to be applied to those involved in tax avoidance schemes disclosed under DOTAS, it could make the taxman arbiter of the tax law beyond its jurisdiction.

It has also emerged that the taxman expects some £365m to be generated through the measure by 2019.

The scope, too, for the wrong amount being deducted in error has caused practitioners to query the wisdom of the proposal, but the taxman maintains it will only use the powers in cases where the debt is well-established and with a series of stringent safeguards in place.

What those safeguards are will be outlined in a consultation. Nevertheless, HMRC insists the powers will be reserved for those who “fail to engage” with the taxman and emphasised the debtors do not lose their right to appeal.

Few would argue the tool’s effectiveness as a revenue-raiser, but many practitioners warn there is still opportunity for error, and harbour concerns over recourse to use of the powers. ICAEW tax faculty technical committee chairman Paul Aplin warned the measures would have to be “bomb-proof”.

“I know HMRC says that the measure will have strong safeguards, but there will be very few practitioners who have not at some time seen HMRC pursue debts that are not due,” he told Accountancy Age.

Despite the fears expressed by practitioners, the strength of feeling is not uniform. Indeed, the Institute of Directors’ head of taxation Stephen Herring suggested the profession has “more authentic challenges to government tax policy than this”.

“In my view,” he adds, “most businesses and individual taxpayers who pay their tax liabilities on time have no patience with the extremely small minority who attempt to defer established tax liabilities for a protracted period.

Herring went to suggest, as others have, that the powers “will act as a deterrent” to those who hope to wear HMRC’s collection system down by failing to respond to the existing collection processes or, where appropriate, agree to a payment plan.

Of course, no adviser worth their salt wants to see the tax dodgers getting away with it, but on the question of whether such a move is taking things too far, the profession is undecided.

Indeed, some commentators have gone so far as to invoke Orwellian imagery and contrast the announcement with the chancellor’s reference to the Magna Carta in his Budget address.For the consultation to yield useful results, though, advisers are best served in acting with one voice, as disunity has, as countless past examples demonstrate, opened the door to botched legislation.

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  • Paul B

    Naturally, anyone will agree that a “small minority who attempt to defer established tax liabilities for a protracted period” should be dealt with (of course within a framweork that does not break the principles of natural law). However, the new finance bill will grant HMRC the disproportionate power to demand, in a retroactive manner, largely arbitrary sums – even as such sums do NOT correspond to an established liability, merely a liability that HMRC “think” exists.

    Much could be said about the numerous cases where HRMC opened an enquiry into a tax return, (say, for example, in 2004), only to go silent for years (not even requesting any additionnal information), when the taxpayer would have been more than happy to cooperate.

    Now, 10 years later, HMRC will have the power to demand “accelerated payment” (under 90 days) for the liability that they thing exists for tax year 2004! (without the taxpayer’s arrangments haveing been proven inappropriate in any way!).

    Who is delaying here? who is deferring?

    Once more, in their attempt to deal with “a small minority”, the Government is well on its way to throwing the baby with the bathwater altogeher.

  • Tony

    Likely to cause a rush on shovels and spades, reinforcement of ceiling and floor joists and new mattresses. All good news for builders merchants, bed suppliers, not to forget garden centres, all to the cost of banks for a major decline in banking charges.