Finance Bill

Further written evidence submitted by the Chartered Institute of Taxation (FB 84)

Finance Bill 2015

Clause 47 and Schedule 8

Enforcement by Deduction from Accounts


1. Clause 47 and Schedule 8 introduce a new power to allow HM Revenue and Customs (HMRC) to recover debts due to it (including tax and tax credits debts) directly from the bank and building society accounts (including Individual Savings Accounts) of debtors. This is also known as Direct Recovery of Debts (DRD).

2. The CIOT does not consider that a convincing case has been made to justify giving HMRC this new power. HMRC already has the power to recover money owed from a debtor’s bank account through the county court process. Enabling HMRC to take money directly out of bank accounts without specific court approval is, in our view, disproportionate.

3. HMRC argue that they need special powers to recover debts directly because the court system is too slow and expensive. This criticism has some justification. But it applies equally to private individuals and businesses who are owed money. It is an argument for the Government to reform the court process for all so that claims can pass through it in a more efficient and less costly way, rather than providing special powers to one body to circumvent it.

4. Our concerns about this proposal have been alleviated by the Government’s agreement to bring in a number of safeguards (see below). This includes a right of appeal to the County Court which is now provided for in primary legislation. Government amendments (amendments 11 and 12) have also been tabled which place a requirement on HMRC to consider whether or not, to the best of HMRC’s knowledge, the person is, or may be, at a particular disadvantage in dealing with their tax affairs, before HMRC decide whether or not to exercise these new powers. This is a significant and welcome step forward.


5. During consultation on this measure we expressed concern that the safeguards proposed at that stage would be inadequate in preventing errors that could lead to hardship and other serious consequences, particularly for vulnerable taxpayers. We also noted that HMRC consulted on a similar proposal in 2007 and decided to take no action on the proposal, following strong opposition.

6. In November 2014, following consultation, HMRC put forward revised proposals including stronger safeguards, taking account of representations from ourselves and others. In particular:

· A right of appeal to the County Court for an affected taxpayer, after a hold has been placed on their bank account, but before any money is taken from it;

· A guarantee that HMRC will only take money under the new power 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;

· Taxpayers identified as ‘vulnerable’ would be excluded from the DRD process altogether and dealt with instead by a specialist unit and helpline working alongside the voluntary sector.

7. We warmly welcomed all three of these safeguards.

8. Of the three safeguards only the first appeared on the face of the Finance Bill published on 14 July 2015, although the commitment to a face-to-face meeting with one of HMRC’s officers for every debtor before their debts are considered for recovery through DRD is mentioned in the Explanatory Notes to the Bill, and will, we anticipate, be laid out in more detail in guidance (although this has not yet been published).

9. Since the Bill was published, we, and colleagues within both our Low Incomes Tax Reform Group (LITRG) and the Association of Taxation Technicians (ATT), have been working with HMRC to explore whether the primary legislation can be amended to incorporate the other two safeguards - a specific reference to HMRC being satisfied that the taxpayer is not a vulnerable person and to give a commitment to the face-to-face meeting or other direct contact. Following these discussions a government amendment (amendment 12) has been tabled to the Finance Bill to insert a new paragraph 4A into Schedule 8.

10. New paragraph 4A makes it clear that before exercising their powers under Schedule 8, HMRC must consider whether or not, to the best of HMRC’s knowledge, there are matters as a result of which the person is, or may be, at a particular disadvantage (it was considered that the term ‘vulnerable’ was too difficult to define) in dealing with their tax affairs. The amendment states that if there are any such matters they must be taken account of in deciding whether or not DRD powers will be exercised. In addition, government amendment 11 makes it a condition that the hold notice must contain a statement to the effect that HMRC are satisfied that issuing it accords with their obligations under paragraph 4A. New paragraph 4A also contains a commitment that HMRC must publish guidance as to the factors which are relevant to determining whether or not a person is at a particular disadvantage in dealing with their tax affairs. This means, in effect, that the third safeguard will now be on the face of the Bill. This is very welcome.

11. Although we still do not have the commitment to a face-to-face meeting or other direct contact explicitly mentioned in primary legislation, the legislation now specifically states that HMRC must consider whether or not, to the best of their knowledge, a person is at a particular disadvantage before proceeding with DRD. In our view, HMRC will find it difficult to determine that a person is not at a particular disadvantage (and put a statement to that effect in the hold notice) without having first made direct contact with that person.

12. We see this as further evidence that HMRC are committed to ensuring that vulnerable taxpayers are identified very early on and excluded from the DRD process.

13. We put on record our thanks to the HMRC team involved in the DRD project for their willingness to engage with us constructively on these important proposals.

CIOT comments on the legislation

This section contains comments on some of the specific paragraphs within Schedule 8

Identification of ‘vulnerability’

14. Paragraph 2 (4) – Condition C is that ‘HMRC is satisfied that the person is aware that the sum is due and payable by the person to the Commissioners’. Before the Government amendment, referred to above, was proposed, this was the only reference in the primary legislation to ensuring the person is aware that they owe the debt. We believed it was necessary for the legislation to go further than this, and include a commitment that HMRC should be satisfied whether or not the person was at a particular disadvantage in relation to their tax affairs for the purpose of DRD, before proceeding with the DRD process.

Correct identification of the debtor’s bank account(s)

15. Paragraph 3 (2)– the prescribed information that is requested by the information notice given to a deposit-taker must be comprehensive enough to ensure that accounts that are wholly inappropriate for DRD action are identified. This would include, for example, nominee accounts (eg where an elderly parent may have added a child to help them manage their financial affairs) and trustee accounts (eg where a parent is named as trustee on an infant child’s account). There is also the situation to consider where a power of attorney is in place, particularly relevant to an elderly or disabled taxpayer.

16. HMRC have recently published draft regulations [1] which prescribe what information a deposit-taker must provide to HMRC on receipt of either an information notice or hold notice to allow HMRC to determine whether DRD is appropriate for the relevant debtor. The CIOT notes that the regulations include provisions which are designed to identify the type of account, including whether or not it is a joint account and whether any other persons have an interest in the account. It will be clearly be vital that deposit takers and HMRC work very closely together when dealing with information notices.

Joint bank accounts

17. Paragraph 6 (4) – the definition of the ‘appropriate fraction’ in relation to a joint account means that the ‘default position’ is that funds held in a joint account are deemed to be held equally between the holders, so that where a joint account is held by two persons, one half of the account will be subject to hold arrangements. We appreciate that this is a simple way of deciding what proportion of the funds in the joint account to target, but it will not necessarily be a fair representation of how the account has been funded.

18. We note that the draft regulations 2 allow HMRC to ask for information that would affect ‘the fraction of the balance of the joint account to which the person is entitled, where applicable’, which HMRC may take into account when issuing the hold notice. However, we are not certain that these enquiries would identify whether a joint account has been unequally funded, or simply identify an account that had been specifically set up in unequal shares (as opposed to in equal shares which we assume would usually be the default position).  It appears that if they do not flag up that the joint account has been disproportionately funded by the non-debtor, the non-debtor joint account holder will have to wait until after the hold notice has been issued before they can make any objections to HMRC under paragraph 9 (3) (c) - on the grounds of exceptional hardship - or paragraph 9 (3) (d) as an interested third party . We understand from our discussions with HMRC that HMRC will take into account at this stage disproportionate funding etc , but we do question whether it is right for a totally innocent joint account holder to have to make such representations to stop HMRC accessing their money in the mistaken belief that it belongs to someone else.

19. We understand why joint accounts are in scope, because if they were not then they would present a simple way for a determined non-payer to circumvent the legislation, but they do present particular difficulties and risk to HMRC if they decide to apply DRD to them. It is clear that HMRC do themselves recognise this by specifying in paragraph 6 (5) (a) that accounts other than joint accounts always have a higher priority that joint accounts. As well as the issues with disproportionate funding, we raise the question whether a sole account where, say, an elderly relative has added an adult child as signatory just to help them run the account could be inadvertently mistaken for a joint account.

20. It is worth pointing out that there is a gap in the legislation because the safeguards (face to face meeting, identifying someone with a significant disadvantage etc) only apply to the debtor and not to anyone else – ie a non-debtor joint account holder or other interested party.

Time limits for supplying information

21. Paragraph 7 (6) – we think that it is unreasonable that the legislation specifies only that HMRC must ‘as soon as reasonably practicable’ give a copy of the hold notice to P. There seems no good reason not to tell the taxpayer straightaway once the hold notice is in effect.

22. Paragraph 7 (10) – the deposit-taker is permitted to inform P that a hold notice has been received after the deposit-taker has complied with the hold notice given to them by HMRC, but there is no obligation imposed on the deposit-taker to do this nor a time limit on it. If the deposit-taker tells the account holder(s) at the same time that it informs HMRC, this would reduce the potential delay in P being advised that their account has been targeted for DRD action. DRD action is a serious step which could have potentially considerable financial consequences not least because the account might in fact be a joint account and so involve a non-debtor.

23. Paragraph 8 (2) – there should be a specified time within which HMRC must give P (and other affected persons) a copy of the notice of cancellation or variation of the hold notice. There would seem to be no reason why this should not be at the same time as the deposit-taker is notified.

Objecting to the hold notice

24. Paragraph 9 (3) (c) - we think that the word ‘exceptional’ here is superfluous. It should be enough that hardship is being alleged/suffered when objecting to the hold notice.

25. Paragraph 9 (1), (2) & (3) – we note that a joint account holder can object under these provisions to the hold notice on the grounds that the joint account is not funded equally between the joint holders, and that this is either causing exceptional hardship to themselves or another person, or that they are an interested third party in relation to the account (an interested third party being someone who has a beneficial interest in an amount standing to the credit of the account). Similarly, a joint account holder can appeal to the County Court on the same grounds.

26. Paragraph 9 (3) – for the avoidance of doubt about whether cases involving ‘special relief’ are covered, a ground for making an objection should be that special relief under Schedule 1AB para 3A TMA 1970 has been made.

County Court appeal process

27. Paragraph 11 (4) – it is important that guidance be produced concerning the County Court appeal process to explain, for example:

How the County Courts will deal with this new process;

Whether special forms will be designed for use by appellants;

Whether there will be costs involved.

28. Paragraph 11 (9) - it is most objectionable that cases of ‘exceptional hardship’ will be suspended only if the taxpayer provides security.

Protection of deposit takers acting in good faith

29. Paragraph 17 – we are not sure how much of a defence this paragraph would give to a deposit-taker facing a complaint from an aggrieved customer whose account has been targeted for DRD action. As it stands, ‘in good faith’ sounds rather vague and we hope that this will be elaborated on in the secondary legislation or guidance. There is also the question of where HMRC stands in terms of liability for errors. We would have expected more details in primary legislation on the issue of compensation for financial loss suffered, both directly and indirectly, as a result of an inappropriate use of DRD.

Appendix: The Chartered Institute of Taxation

The Chartered Institute of Taxation (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 17,500 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

October 2015

Prepared 16th October 2015