Background
HM Revenue & Customs (HMRC) has recently confirmed that following a four-year hiatus it has now restarted the use of its Direct Recovery of Debts (DRD) powers for individuals and businesses who do not pay the tax they owe. HMRC paused the use of DRD during the Covid-19 pandemic and has now returned to using this method in a ‘test and learn’ phase.
These DRD powers enable HMRC to collect tax debts directly from bank accounts and can be used when an individual or business can afford to pay what they owe but are choosing not to pay.
Detail
Where an individual or business has a tax debt that they are refusing to pay, despite having the means to pay it, HMRC will consider recovering the funds it is owed directly from the person’s bank or building society account. HMRC was given its DRD powers in 2015, although it did use these powers sparingly before Covid struck in 2020, when all such activity was paused.
HMRC has now decided to relaunch DRD as they believe it offers a strong deterrent against non-payment and is part of the effort to reduce tax debt.
Under DRD, HMRC can require a bank or building society to pay sums directly from a person’s account or cash Individual Savings Account (ISA) where that person owes HMRC £1,000 or more. The person has 30 days from the start of the DRD recovery process to lodge an objection with HMRC and they can appeal against HMRC’s decision to a county court on specified grounds, including hardship.
HMRC’s DRD powers are subject to a number of safeguards, including that:
- HMRC will only apply DRD where the person has established debts, has passed the timetable for appeals, and has repeatedly ignored HMRC’s attempts to make contact.
- HMRC guarantees that the person will receive a face-to-face visit from HMRC before their debts are considered for recovery through DRD. At the meeting, HMRC will discuss options to resolve the debt, including offering a time to pay arrangement, and assess whether the person is vulnerable and requires additional support.
HMRC states that it will always leave at least £5,000 in the debtor’s accounts so that it does “not put a hold on money needed to pay wages, mortgages or essential business or household expenses”.
HMRC will seek to help those taxpayers who are experiencing genuine financial difficulty as well as making extra assistance available for vulnerable taxpayers.
If you would like more information regarding paying your tax liability or on time to pay arrangements, please contact our Tax Director, Jenny Marks.
To see our other news items please visit our Muras Baker Jones – Blog.