Tax specialists have warned that HM Revenue & Customs (HMRC) could “steal a march on other creditors” as result of a new measure announced in the March 2014 Budget.
The Budget document said that the government would “modernise and strengthen HMRC’s debt collection powers to recover financial assets from the bank accounts of debtors who owe over £1,000 of tax or tax credit debts, have the financial means to pay, and have been contacted multiple times by HMRC to pay.”
It added: “A minimum of £5,000 will be left across debtors’ accounts. This brings the UK in line with many other tax authorities which already have the power to recover debts directly from an individual’s account, such as France and the US.”
But the Low Incomes Tax Reform Group (LITRG) – part of the Chartered Institute of Taxation – said it had “strong concerns” about what it described as an “unprecedented” power in the UK.
LITRG chairman Anthony Thomas said: “HMRC say they will only use their new power where debtors ‘have the financial means to pay’ and have been asked for payment many times.
“It is unclear how HMRC will determine whether a debtor has the financial means to pay, or by what criteria this will be judged. People who owe HMRC £1,000 or just over may simply be people on low incomes or low wages who have got into difficulties and are in debt not only to HMRC but also to others, notably public utilities.
“To let HMRC raid their bank accounts without safeguards or recourse to the courts – or with inadequate safeguards – would be to flout the rule of law in a manner unworthy of a public service body. Besides, it would allow HMRC to steal a march on other creditors in the event of a bankruptcy, something which was abandoned long ago with the abolition of Crown preference in bankruptcy proceedings.”
An HMRC spokesman told the BBC said it would be consulting on a new measure with “appropriate safeguards to help level the playing field, and tackle those who have the means to pay but are choosing not to.” The spokesman commented that: “this will only affect a tiny number of debtors whom we have contacted a minimum of four times to ask for payment.”
He added that those affected would have the right to appeal against any move.
This is a potentially significant development in insolvency law in the UK and it will be interesting to see the detail set out in the consultation and how it addresses the issues raised by the LITRG. As insolvency law continues to evolve, Palmers can provide expert advice to support insolvency practitioners. For more information, please contact Andrew Skinner.