Consultation begins on Direct Recovery of Debts

Wednesday 7 May 2014

The government has launched a consultation on one of the key proposals in Budget 2014, which could see those refusing to pay tax forced to settle their debts.

Businesses and individuals will both be affected by the Direct Recovery of Debts plan if passed.

Under the proposals, those refusing to pay tax and tax credits will be forced to settle their debts with HM Revenue and Customs (HMRC).

The tax body will have the power to recover cash directly from bank accounts, building society accounts and ISAs when businesses or individuals owe £1,000 or more.

According to the government, the proposals will increase fairness; levelling the playing field and protecting the majority of those that pay tax as and when they need to.

It is expected the changes, if made law, will affect around 17,000 cases per year, with the average debt standing at £5,800 and the majority of offenders having over £20,000 in their accounts. However, it will make it all the more crucial for businesses and freelancers to be on top of tax matters, employing contractor accountants to ensure they are in compliance with the law.

Exchequer secretary to the Treasury, David Gauke, said: "The government’s long term economic plan is to reduce the deficit so that we deal with our debts. It is therefore important that people pay the tax they owe, on time. Although the vast majority do this, there is still a minority that chooses not to pay, despite being able.

"Providing HMRC with the powers to directly recover tax debts will reduce the debt owed to HMRC in the most effective way so that the government can continue to fund vital public services."

The government has assured taxpayers that safeguards will be established to ensure there is certainty to the system.

HMRC will only be able to take action against those with established debts and who have passed the timetable for appeals.

Only debtors who have repeatedly ignored attempts to make contact - typically on nine separate occasions but a minimum of four - will be targeted.

A minimum of £5,000 will also always be left in the business' or  individual's account, while HMRC will put a hold on the account and give offenders 14 days to arrange payment.

For those that struggle to comply, there are services available to help. Whether using an accountant or the government's Time to Pay arrangements, there are plenty of options out there for businesses and contractors.

"Having supported compliant taxpayers and provided help to those who find it difficult to comply, it is only fair to promptly pursue those who choose not to pay on time," Mr Gauke said. "Making this change will align the UK with other countries whose tax authorities use similar powers."

The consultation will remain open until July 29th and all interested parties and stakeholders are welcomed to give their views.

This is one of the first tax changes outlined in Budget 2014 to go to consultation. Other proposals include users of tax avoidance schemes previously defeated in another party's legislation to pay disputed tax upfront. This will apply to schemes that fall within the scope of the Disclosure of Tax Avoidance Scheme and the General Anti-Abuse Rule.

By Victoria McDonnell

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