HMRC to take £17,000 from tax debtors

HM Revenue & Customs has expanded its powers by increasing the amount of money it can take from workers’ salaries to recover unpaid tax bills, sparking fears that the taxman is intruding too much into people’s privacy. Jermaine Haughton tells us more. 

As it currently stands 

Currently a maximum of £3,000 can be retrieved by the taxman but from April next year HMRC will be able to collect up to £17,000, depending on salary.

The new rules will see the coding system used to recover debts. Instead of individuals paying back what’s owed when they want to, the new system will see the tax codes of those who have underpaid income tax, capital gains tax or National Insurance contributions change meaning that whenever they are paid through the PAYE system, more money than usual is automatically taken from their salary and paid back to the taxman.

HMRC insists the system will be fairer and any money taken would be spread out over twelve monthly instalments. Also, the taxman claims it will be able to recover more debt per year from people who earn more. This is because the limit is determined by the earnings of the debtor. Someone earning less than £30,000, for example, will see their limit unchanged at £3,000, while those on a salary of over £90,000 will have pay up to around £14,000 more.

The Tax Information and Impact Note (TIIN) filed by HMRC says the taxman expecting to raise £115 million extra during the 2015-16 tax year, and a further £50m between 2016-17, because of the implementation of the new rules.

Not a warm welcome 

The move is likely to receive similar public dismay as previous proposals made by the Treasury which wanted to allow the taxman to raid bank accounts for unpaid taxes without gaining permission from the courts. Described as ‘draconian and regressive’ by industry bodies, Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, says the development creates an uncomfortable precedent. Roy-Chowdhury said: ‘This is another creeping of HMRC’s powers, which are skewed in favour of themselves and away from the taxpayers. HMRC is becoming a more confrontational and all-powerful organisation.”

Tim Stovold, of accountancy firm Kingston Smith, warned that these new rules could be just as damaging to the public as HMRC’s plans to take funds directly from an individual’s bank accounts. He said: “This change has had much less focus than the harshly criticised rules for the direct recovery of debts from bank accounts. If HMRC is denied that ability they are more likely to use these new powers to collect the money from salaries instead.”

Noticeably, the government seems to be doubling its efforts to recover unpaid taxes which could total billions of pounds and will additionally introduce its ‘accelerated payment’ rules from next month. Focusing on businesses as well as individuals, the rules ask for debtors to pay disputed tax up front before their cases are heard in court, drawing accusations from critics of unfairness.

Up to speed on DRD – Direct recovery of Debts? If not, you should be. Read AAT’s Tax Policy Adviser’s blog post.

Jermaine Haughton is a journalist and digital media professional.