HMRC revises Direct Recovery of Debt powers

Thursday 27 November 2014

Plans for taxes owed to be recovered directly from bank accounts by HM Revenue and Customs (HMRC) have been revised.

Under the new plans, taxpayers will have more time to appeal before HMRC takes any money from their accounts.

The Direct Recovery of Debt (DRD) system was announced by chancellor George Osborne during the 2014 Budget and gave HMRC the power to take assets from anyone who owes more than £1,000 in tax or tax credits, if it is not protected by certain safeguards.

This could include individuals such as limited company contractors, umbrella company contractors or sole traders who have not paid enough tax through self assessment.

However, HMRC said that under revised plans there will be some restrictions in place before it can seize unpaid tax.

This includes a face to face meeting an an appeals process. Additionally, funds that are collected through DRD will be returned to the taxpayer if they were insolvent at the time. What's more, the length of time for taxpayers to contact HMRC to pay money owed or to object to its challenge will be extended to 30 days.

HMRC will no longer be able to ask the taxpayer's bank or building society for 12 months of data. Instead, it will only be able to request their account balance.

The changes have been welcomed by a number of groups, such as the Low Incomes Tax Reform Group and the Chartered Institute of Taxation (CIOT).

Initially, the Low Income Tax Reform Group criticised the introduction of DRD proposals. Upon the announcement of the changes, it endorsed HMRC's plans not to include the "vulnerable".

That said, the group was not ready to welcome DRD fully. It said that it wants to see the draft legislation first and would like the definition of "vulnerable" in this context to be outlined.

The CIOT was also reserved about DRD, stating that there needs to be enough time for the measure to be debated before it passes into law.

However, it did say that the new DRD proposals show that the government has listened to the concerns over the measure. Particularly as it was initially feared that DRD would undermine the rule of law as there was no recourse to appeal outlined at first.

Prior to the changes, DRD attracted widespread criticism from business groups, debt charities, MPs and banks.

Self employed professionals who are concerned about where they stand with the taxman should seek out bespoke accountancy services, such as Brookson.

Senior compliance manager at Brookson Ltd, Matt Fryer, said: "As part of our tax promise for Brookson, we back our clients every step of the way in the event that their status is challenged by HMRC. We keep each document on their employment from the start so that we can deal with HMRC directly and provide all the information needed promptly.

"Even so, we are thorough in our approach and calculate our clients' tax status correctly first time so it is highly unlikely that they will be challenged by HMRC in the first place."

By Victoria McDonnell

Get in touch

Please select your type of enquiry:

Brookson on Twitter