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You’ve got to pick a pocket or two

At the Budget the Government announced plans to enable HMRC to collect unpaid tax directly from the debtor's bank account. This was largely missed by the media as most attention focused on the reforms to pensions. However, you can expect this highly controversial proposal to hit the headlines over the next few weeks now that HMRC have published their plans for the scheme.

In brief, HMRC propose to apply the Direct Recovery of Debts (DRD) rules where: (1) the debtor owes £1,000 or more in tax or overpaid tax credits; and (2) the debtor has funds of £5,000 or more in his or her bank and building society accounts, including ISAs. Under the DRD rules, HMRC will be able to put a hold on funds equal to the amount of the unpaid tax (leaving a minimum of £5,000 across the debtor's accounts). The debtor will then have 14 days to resolve the situation with HMRC. If he or she fails to do that in time, the funds on hold will be transferred to HMRC.

If this wasn't bad enough, the proposed rules will give HMRC the power to request 12 months of past account information on the debtor. HMRC will require this information so that they can work out how much to leave in the account to cover mortgage costs, etc. However, it may be that the information gathered will enable HMRC to open up new lines of enquiry (e.g. where total deposits exceed declared sales).

HMRC estimate that the DRD rules will apply to around 17,000 taxpayers each year, most of them self-employed. And there will be no get-out for accounts held in joint names. In such cases, HMRC will seek to recover 50% of the balance on the account.

If enacted, the new rules are expected to apply from next Spring. From then on, the 10% or so of taxpayers who pay their tax late would be well-advised to keep an eye on their wallets. As the signs warn: "Beware: pickpockets operate in this area".

Stephen Relf

Stephen Relf

Tax Consultant

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