Q and A: Tax recovery proposals

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PA

The taxman will be allowed to claw back money directly from people's bank accounts, including joint accounts and Isas, under new proposals.

:: What is being planned?

The Government unveiled proposals, known as the "direct recovery of debts" (DRD) from people's bank accounts in this year's Budget.

Under the plans, HM Revenue and Customs will be allowed to recover tax and tax credit debts directly from debtors' bank and building society accounts, including joint accounts and Isas, without needing to apply to a court.

HMRC launched a consultation document on the proposals earlier this month, with the aim that draft legislation will be published for consultation to coincide with this year's Autumn Statement. The legislation is expected to be taken forward as part of the 2015 Finance Bill.

:: Why are the new proposed powers thought to be needed?

The aim of the plans is to ensure people who refuse to pay their taxes when they are meant to are pursued promptly. It is argued that they could make the tax system fairer, so that those who won't pay their taxes or try to delay paying for as long as they can do not gain an advantage over those who do.

Around 10% of taxpayers in self-assessment file their tax returns either late or not at all. Debts owed to HMRC can also come from tax credits that have been overpaid and not paid back, unpaid national insurance contributions and interest and penalties that have not been paid on time.

The new policy aims to "modernise" methods for collecting debt. At present, recovering debts from people who dig their heels in can be slow and expensive.

As a tax collector acting on behalf of the Exchequer, HMRC already has powers to seize control of certain goods, which can be used to enforce payment where the debtor has sufficient assets that can be sold.

But in cases where the debtor does not have sufficient physical assets but does have cash, HMRC has no comparable power to recover cash directly from bank and building society accounts without first obtaining judgment for the debt in court.

This process gives debtors plenty of notice before enforcement can be taken, giving the debtor a chance to move their cash and make it harder for the revenue body to get its hands on it.

:: So will the new powers mean the taxman can just swoop in, clear out your bank account and leave you penniless?

No. The consultation paper just launched by HMRC says the proposed powers are only aimed at a "small core" of taxpayers who owe more than £1,000 and have enough money in their accounts to pay. The debt could be owed against just one tax or a range of them.

It says these people will have ignored letters and telephone calls asking them to make arrangements to settle up what they owe.

Debtors who are contacted by the taxman about payments can try and make arrangements to pay in instalments and they also have a right to appeal to a tribunal if they disagree with the amount owed.

The taxman will not take the cash unless it still leaves you with at least £5,000 after the debt has been recovered.

The consultation paper argues that the process could be "easily reversible" and money could be quickly returned to a debtor's account where necessary.

Those behind the plans said they will strike a balance between the need to claw back money owed to the Government and the need to protect people in genuine hardship.

People who are genuinely unable to pay what they owe on time can ask for a "time to pay" arrangement, which could involve paying the tax owed in instalments. Around £2.4 billion of debt was being collected this way in February this year.

:: How many people will be hit by the new rules?

Around 17,000 people a year will be affected, according to the taxman's estimates.

Those who are going to find money clawed out of their accounts under the plans owe an average of £5,800 in tax and tax credit debts.

Around half of the people affected by this policy have more than £20,000 stashed in their bank and building society accounts and Isas.

:: What will happen in cases where the revenue body decides you could be a suitable candidate for it to claw back debts owed to the Government through your bank account?

If someone has ignored all HMRC's correspondence and it decides to take a DRD action, it will match this debt against the bank, building society and Isa account information it already holds about you.

Banks and building societies are already required to share information with HMRC about interest paid or credited to accounts they hold for their customers.

HMRC says "rigorous" checks will take place to ensure it has the most up-to-date information about how much money someone has across their accounts and whether the debt is still due.

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