Many have been left wondering how HM Revenue and Custom's (HMRC) new plan to take money directly from the bank accounts of debtors will affect them.
If this proposal is accepted, HMRC would be able to bypass the courts that currently act as a safeguard for the public. This has caused concern among campaigners and those in the financial industry, due to the large financial and mental cost that it would have on vulnerable taxpayers.
Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA), said: “These new powers are knocking at the door of being unconstitutional. The existing safeguards in recovery of tax debts protects taxpayers by ensuring the activities of HMRC are subject to review by the courts prior to enforcement. HMRC’s proposed powers effectively throw that principle out the window.”
In the proposal, however, HMRC has said they will safeguard the vulnerable by ensuring that debts would only be taken from bank accounts if a minimum of £5,000 would be left once it had been recovered. HMRC believes that, along with additional checks, this would make sure that no one was left in financial trouble. It is estimated that approximately 17,000 people will be affected by this.
There are concerns with the actual effectiveness of HMRC’s provisions in that it could bring further debt to the vulnerable and, essentially, force those affected to make sacrifices with their remaining funds. Some may have set aside an amount for a particular bill or to pay for a specific essential. Priorities differ between each individual and should a mortgage payment be missed as their is a lack of funds due to HMRC’s debt recovery plan, the consequences could be horrific and may result in a domino-like effect. In essence, the plan could make the difference between someone being able to heat their home over winter.
Low Incomes Tax Reform Group (LITRG) Chairman, Anthony Thomas, said: “It is deeply disturbing that recipients of tax credit overpayments, a group already vulnerable to administrative error, are to be included in the list of debts in respect of which the proposals may be applied.”
LITRG has also highlighted that there is a significant difference between those who ‘won’t pay’ and those who legitimately ‘can’t pay’, which again leads to concern as to how HMRC will deal with this. HMRC has said that all in-debt taxpayers come into one of four categories: Those who would pay if they could but have short-term financial difficulties; those with serious financial problems who may never be able to pay; those who are in a position to pay but choose not to, or delay payment for as long as they can; and those deliberately avoiding engagement with HMRC. They state that the proposal relates to those debtors in the final two categories.
Obviously, there is always the chance of a human error being made by the debtor or HMRC and should any mistake be made, without the courts’ involvement, this could bring some serious repercussions.
While it is understandable that HMRC wants to claim back debts off those who have been avoiding it, a much safer method should perhaps be put forward alongside the proposal.
Mr Roy-Chowdhury expanded that: ”You can’t blame HMRC for looking at more economical options if the full cost of securing a county court judgement under the current system is too great. If we are going to have these powers imposed, then some other form of review by an officer of the court should be considered as a part of the safeguards in any power to access bank accounts."