HMRC, the Labour government's tax authority, is set to expand its powers to spy on bank accounts and automatically seize cash for debts as low as 1p. Under new proposals, HMRC can recover money from accounts of those owing more than £1,000, removing the existing £5,000 buffer that currently protects debtors.
Current Rules and Proposed Changes
Under existing “direct recovery powers” introduced a decade ago, HMRC can reclaim debts as a lump sum but must leave at least £5,000 in the debtor's account. New powers, detailed in documents published on Tuesday, would allow HMRC to recover “high volumes” of small debts without this safeguard. The Telegraph reports that up to 250,000 taxpayers owing £5,000 or less could have their accounts raided under the plans.
Expert Concerns
Nimesh Shah of tax firm Blick Rothenberg said: “I have some sympathy for HMRC for having to expend significant time to chase smaller amounts and the associated time and cost can be higher than the amount involved. Saying that, my concern is that this could be used as a ‘sledgehammer’ by HMRC without the proper safeguards in place. There is also the issue of where HMRC have assessed the incorrect amount of tax and they then use this power to recover an amount which actually isn’t due.”
Victoria Todd of the Low Incomes Tax Reform Group added: “We are particularly concerned that the proposals do not currently include a minimum amount that must be left in a taxpayer’s account. For those living on a tight budget, deductions could leave them struggling to meet essential living costs. HMRC will need to be confident that they can correctly identify potentially vulnerable taxpayers and distinguish them from those who are simply choosing not to engage.”
Risk of Driving Debt
Robert Salter, also of Blick Rothenberg, questioned: “Is there a risk that such automatic collection arrangements could drive taxpayers into further debt?”
Government Justification
Dan Tomlinson, the exchequer secretary to the Treasury, defended the plans: “The vast majority pay on time and in full, so it’s vital for a fair tax system that we seek to recover debt from those who can afford to pay but refuse to. These extended powers would ensure fairness for all taxpayers, while support will continue to be offered to those wanting help with their payments.”
