Plans to let HMRC take tax from bank accounts coming under fire

New government proposals allowing HMRC to recover money from tax evaders by taking funds directly from bank accounts has caused quite a stir.

The plans are part of the Treasury’s attempt to claw back some of the £5.1billion lost to illegal tax practices annually, but the cross-party Treasury Committee has already announced its “considerable concern” over the severity of the measures.

As part of this year’s Budget announcement, HMRC can claim tax debts from any individual who owes more than £1,000, but the measure will only be enforced after the debtor has been warned on four occasions.

A spokesman for the Treasury 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.”

Let the taxman in

Giving the taxman direct access to millions of personal bank accounts would undoubtedly leave them vulnerable to malicious threats or costly incompetence from HMRC staff.

“This policy is highly dependent on HMRC’s ability to accurately determine which taxpayers owe money and what amounts they owe, an ability not always demonstrated in the past,” the Treasury Committee’s report said. “Incorrectly collecting money will result in serious detriment to taxpayers.”

One of the most eye-catching aspects of these measures would be its effect on the relationship between HMRC, the individual and the legal system. If the powers were introduced, HMRC could withdraw funds it thinks it is owed without prior permission from a court or independent body.

Politics writer Ian Dunt explained: “This is how it works: your tax adviser recommends you use a tax avoidance scheme. They reckon HMRC might dispute it, but it’s worth a punt. You legally have to mention the fact you’re using the scheme to HMRC. If they don’t like the look of it, they challenge you. Usually (80% of the time) they win. The internal decision, unsurprisingly, goes their way, and most subsequent legal challenges against it fail.”

Critics argue the proposals will cause problems for struggling small- and medium-sized businesses, as the power would effectively see the return of the discredited Crown Preference rule, which gave HMRC priority access to assets when firms went bust.

Insolvency law expert Alastair Lomax from Pinsent Masons warns the knock-on effects on insolvencies could be significant.

He said: “Banks, asset based lenders and other stakeholders should pay close attention to these developments. The taxman’s power to “grab” bank balances would be a powerful weapon with the potential to shift the balance of power in both consensual restructurings and formal insolvencies.”

The Institute of Chartered Accountants in England and Wales has reacted to the developments by providing a number of questions aimed at giving stakeholders a “clearer idea of how these new powers will work and how they will impact on the taxpayer.”

At present, the measures still have some way to go before becoming a law, but judging by the ground swell of debate following its announcement, the government will have a tough job convincing account holders to trust the taxman with their money.

Jermaine Haughton is a journalist and digital media professional.