LITRG offer guarded welcome to revised proposals on direct recovery of debt

HMRC have put forward revised proposals to recover long outstanding debt directly from the bank accounts of defaulters. The Low Incomes Tax Reform Group (LITRG) welcomes the Government’s willingness to listen to the Group’s objections to the original proposals and believes that if the current plans go forward as outlined, vulnerable debtors should be safe from the use of the new power. But until we have sight of the draft legislation, and in particular the definition of the term ‘vulnerable’, our welcome will remain a guarded one.

In his March 2014 Budget, the Chancellor announced that HMRC would develop proposals to recover debts owed to them directly from the bank accounts of persistent defaulters without the need for a court order. Shortly afterwards HMRC issued a consultation document outlining the proposed measures regulating direct recovery of debt, or DRD, and safeguards against possible abuse. LITRG along with other professional bodies strongly criticised the proposals on the grounds that to exclude the jurisdiction of the courts was unconstitutional, while the safeguards were wholly inadequate, insufficient to protect vulnerable debtors, and failed to distinguish the ‘won’t pays’ from the ‘can’t pays’.

Since then, HMRC have reflected on the responses to their consultation and the revised proposals they now put forward take account of many of the representations made. In particular:

·         They have agreed to a right of appeal to the County Court after freezing a taxpayer’s bank account but before any money is collected from it. First, a taxpayer who objects to having their bank account frozen must make their objection to HMRC within 30 days (as against 14 days in the original proposals), and if HMRC over-rules them they have a further 30 days in which to appeal to the County Court;

·          They will only exact DRD after a face-to-face meeting with the debtor, at which HMRC officers will satisfy themselves that they have identified the right debtor and calculated the debt correctly, before exploring with the taxpayer various options for settlement of the debt including time to pay.

·         Taxpayers identified as ‘vulnerable’ will be excluded from the DRD process altogether and will be dealt with instead by a specialist unit and helpline working alongside the voluntary sector, in consultation with whom the definition of ‘vulnerable’ will be drawn up.

LITRG President, Anthony Thomas, said:

“We welcome HMRC’s willingness to listen to consultation and to engage with us and other professionals on the form this new power should take.

“Our primary concern is that the vulnerable taxpayer or tax credit claimant on a low income who gets in a muddle should not be caught up in a process designed to target those who have the funds to pay their tax on time but who resolutely refuse to do so. We were also greatly concerned that taking funds out of someone’s bank account without authorisation by the courts ran counter to the rule of law.

“The County Court procedure contained in the revised proposals provides the necessary judicial oversight before any money is taken – although not before the account is first frozen. The undertaking not to apply DRD before a face-to-face meeting with the taxpayer, and not to apply it at all where the taxpayer is adjudged vulnerable, is undoubtedly a step in the right direction and should prove adequate protection for that group of individuals.

“But importantly, these improved safeguards must be adequately set out in primary legislation. It is no good writing them only into guidance, as guidance can always be changed without reference to Parliament. We understand draft legislation will be published in due course, and we shall examine it keenly to ensure that it does all that we expect it to do.”

Notes to Editors

1.        The Low Incomes Tax Reform Group (LITRG)

LITRG is an initiative of the Chartered Institute of Taxation to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

2.        The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 17,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.