HMRC's draconian DRD plans diluted after wave of opposition

HMRC’s highly controversial plans to remove outstanding tax debts directly from people’s bank accounts have been severely weakened after it caved in to massive pressure from the accounting, banking and charity sectors.

The Treasury’s draconian Direct Recovery of Debts (DRD) plans now come with a number of safeguards to prevent state abuse, such as taxpayers being afforded the right of appeal at court before any funds can be emptied from a bank account.

Other key protections include guaranteed face-to-face contact with an HMRC officer and the creation of a specialist unit to deal with cases involving vulnerable members of society, as well as providing a dedicated DRD team and helpline.

Financial secretary to the Treasury, David Gauke, said: “This is about levelling the playing field. The vast majority of people pay the tax that is due, on time, but there is still a very small minority who try to gain an unfair advantage by persistently refusing to pay what they owe, despite being able to. These are the people who will be targeted by the powers for the direct recovery of debts owed to the Exchequer.

“We already set out robust safeguards to protect vulnerable debtors in our original Direct Recovery of Debts proposals, but feedback from the consultation process told us we could do more to make sure this only catches those who are playing the system.

“We’re strengthening the guarantees we can offer taxpayers that the powers will only be used when debtors have consistently refused to talk to HMRC and settle their debts, and their use will be subject to the toughest scrutiny and oversight possible.”

Additional protections including only taking action against those with over £1,000 of tax or tax credits debt, and a promise to always leave a minimum of £5,000 across debtors’ accounts, and only put a hold on the funds in the affected account up to the value of the debt.

The Treasury also vowed to put a hold on debtors’ accounts and giving them 30 days – twice as long as previously planned – to contact HMRC and arrange repayment plans.

Chas Roy-Chowdhury, head of taxation at ACCA, said it was “a good day for taxpayer confidentiality”.

“While ACCA would have preferred the power were not being proposed at all, we consider where we are today is light years better than what was originally being proposed.

“There will now be a totally different ethos behind the way the power will be designed and implemented. It will no longer be played out as a remote-controlled video game where HMRC remotely takes money out of the taxpayers account.

“There will now need to be face to face engagement between HMRC and the tax payer before anything can happen. Vulnerable tax payers will be identified and taken out of the process entirely and put in touch with a dedicated helpline.”

HMRC estimates DRD will apply to around 17,000 cases a year, with the average debt of those affected £5,800. Around half of these cases will involve debtors with more than £20,000 in their bank and building society accounts.

Paul Aplin, partner at AC Mole & Sons, added his backing to the reforms: “Many said that HMRC would get this power without any element of external oversight regardless of the profession’s protests, but the fact is that ministers and HMRC have listened. That fundamental concern has been addressed with a right of appeal to a court.

“HMRC cannot be judge and jury with this safeguard in place. We need to see the detail in the draft legislation, but on the basis of what has been announced this is now a very different proposal.”