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The Financial Times has today reported that unpaid taxes could be seized directly from people’s bank accounts without a court order, under proposals drawn up by HMRC to deal with late payments by hundreds of thousands of businesses and individuals every year.

HMRC currently pursue more than 200,000 taxpayers through the courts every year. They believe that the existing system is expensive and allows defaulters enough time to put their assets out of reach before an order is made. New powers would allow tax collectors to bypass the courts when ordering banks to pay outstanding debts from taxpayers’ bank accounts.

The proposals, which are contained in a consultation document entitled Payment, Repayment and Debt, have already provoked concern from the tax profession. The Chartered Institute of Taxation (CIOT) believes there are serious issues that need to be addressed. For example, if someone has a joint bank account, what redress does the 'innocent party' in the relationship have? Furthermore, what happens where HMRC and the taxpayer do not agree whether anything is owing and the issue is being handled properly through existing channels?

HMRC have, however, stated that the new powers would only be exercised after multiple requests for payment and other warnings had gone unheeded.

The proposals, which would require legislative change if adopted, would involve freezing an amount equal to the debt within the bank account, a sum that would later be paid over to HMRC if other attempts to collect the debt proved fruitless. In some cases, a charge would be placed on land and buildings so that HMRC would be paid if the asset were sold.

The consultation acknowledged that such a power “would require important safeguards to protect the taxpayer and, in the case of joint assets, the other owners of the asset”. Taxpayers would be allowed to argue that they would suffer hardship if payment of the debt was enforced, with the right to appeal to the courts.

HMRC said that in some cases, the proposals would prove less disruptive and costly for late payers than the existing rules, where goods can be seized from homes without applying to the courts. HMRC officers make more than 400,000 visits a year for payment or to seize goods.

If HMRC are to gain or extend their powers, the CIOT has confirmed that it will demand that safeguards exist for the taxpayer. The Institute has long argued for a Taxpayers' Charter setting out rights and responsibilities.

Links

The Financial Times

The Chartered Institute of Taxation