Can HMRC really take money straight from my bank account?

A pound coin rolling upon a bed of pound coins

Potentially in the future, yes… but only if you haven’t paid your tax!

In the budget the chancellor announced that HMRC were to be give powers to enable the direct recovery of debts (DRD) from a taxpayer’s bank accounts (including ISAs). Quite rightly this has caused much concern and been the subject of much debate in the media. It should be noted that the practicalities of implementing theses powers are still in the consultation stages and as yet nothing is certain.

According to this document the goal is for these powers to "modernise and strengthen HMRC’s ability to recover tax and tax credit debts from those who are refusing to pay what they owe. It will help to level the playing field between those who pay what they owe, when they owe it, and those who do not." This sounds like an admirable goal but inevitably safeguards are needed to protect vulnerable persons and prevent HMRC abusing these far reaching powers. The treasury select committee recognised this when they noted that "Giving HMRC this power without some form of prior independent oversight – for example by a new ombudsman or tribunal, or through the courts – would be wholly unacceptable" 

So who is affected? 

HMRC estimate this will affect 17,000 cases each year (which is less than 0.02% of taxpayers in Self Assessment). 

It will only affect those who have not paid their tax and do not engage with HMRC in respect of their tax liability, those with a "time to pay" arrangement will not be affected provided they keep to their agreement. 

Under current proposals HMRC suggest the powers are only suitable for debts in excess of £1,000. The debt could be a single debt for one tax or made up of various smaller amounts covering a range of taxes (including tax credits). 

What are the proposed safeguards?

HMRC will, as an absolute minimum, need to contact the taxpayer four times before any attempt to apply the DRD powers is made. This contact may be by letter or phone. They envisage that a taxpayer who previously had a good history of compliance will be contacted by HMRC around nine times before DRD is used. On the subject of communication it is important to note that HMRC typically don’t use email and would NEVER notify you of a refund via email, if you receive any email offering a tax repayment claiming to be from HMRC it is likely to be a scam.

HMRC are proposing to obtain up to date balances and a 12 month history for each of the bank accounts to ensure DRD does not inadvertently cause the taxpayer to suffer undue hardship. 

HMRC will leave a minimum of £5,000 in the debtor’s account after the debt has been recovered. HMRC will put a "hold" on monies above £5,000, or any higher amount they deem reasonable after reviewing the account history, in so far as they cover any tax owed. HMRC will write to the taxpayer to inform them of the "hold" and urge the taxpayer to contact them in order to settle the tax or agree a "time to pay" arrangement where appropriate. 

The "hold" placed on the monies at the bank or building society will be in force for 14 days from the date of the letter notifying the taxpayer, giving the taxpayer the opportunity to contact HMRC. If contact is made and arrangements are made to pay the tax the "hold" will be lifted or the funds transferred as part of the agreement. 

HMRC state it is their preference to take funds from accounts used primarily for savings over those used to cover day-to-day expenses. 

Where a "hold" is placed on a joint account HMRC propose a pro-rata proportion (i.e. 50/50) of the credit balance will be subject to DRD. The joint holder will have the right to object to HMRC on the grounds of hardship or misidentification. 

So in summary

The current proposals are:

  • The tax owed must be over £1,000 
  • The taxpayer must be contacted a minimum of 4 times by HMRC 
  • HMRC must leave a reasonable amount in the taxpayer’s account to cover normal expenses – minimum of £5,000 
  • A "hold" must be placed over the funds for 14 day before funds are taken to give the taxpayer time to object. 
  • With joint accounts a joint holder should be able to object.

 Again it is important to appreciate that this is all in the consultation stage at the moment and all subject to change so we will need to wait and see what happens. In the meantime a copy of the consultation can be found on the Government website.

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Chat to the Author, Cathy Izzard

Consultant, Wills, Trusts, Tax and Probate, Bishop's Stortford office

Meet Cathy
Cathy Izzard, partner and later life planning specialist in Bishops Stortford
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