Finance Bill

Further written evidence submitted by the Low Incomes Tax Reform Group (FB 82)

Finance Bill 2015

Clause 47 and Schedule 8

Enforcement by Deduction from Accounts

1. When it was originally proposed that tax debts should be collectible by deduction directly from the bank accounts of the debtor without recourse to the courts (direct recovery of debt, or DRD, as it was then called), we expressed our strong opposition. We took the view that HM Revenue & Customs’ (HMRC) pre-existing power to satisfy a debt by taking money from a debtor’s bank account pursuant to a court order was appropriate, proportionate, fair and balanced by a robust and crucial safeguard – the independent oversight of the court. We said that the courts provided the only effective remedy against any misuse of executive power, and that the unrepresented and the vulnerable would almost certainly suffer the most from the removal of that crucial safeguard [1] . Moreover, such safeguards as were proposed in that early consultation were totally unsatisfactory and were little more than internal checks.

2. Our concerns stemmed from the numerous cases we had seen, or had drawn to our attention, where HMRC had erroneously sent letters to the wrong address, or chased debts that did not exist, debts that had already been paid, or debts that were wrongly calculated, all of them involving elderly, sick or otherwise vulnerable taxpayers. The wrongful use of so draconian a power without proper oversight would be wholly unacceptable because of the potentially catastrophic effect, financially and emotionally, on any individual incorrectly targeted or their household. One such case alone would be enough to justify resisting such a power, and could also prove inimical to HMRC’s reputation.

3. To their credit, HMRC took on board a number of our key concerns and agreed to ensure that vulnerable debtors were excluded from the ambit of the new power. A new team was established within the Debt Management and Banking (DMB) function of HMRC to oversee recovery of debt from vulnerable debtors. HMRC undertook not to exercise the new power unless a field force officer with appropriate training had met the debtor face-to-face and satisfied himself/herself that they were not vulnerable and appreciated their liability and the extent of it. If the field officer concluded that the debtor was vulnerable, the enforcement procedure would not be used but the debtor would be referred to the Vulnerable Debtors Unit of DMB.

4. HMRC also said that a right of appeal to the County Court would be introduced where a taxpayer had objected to the use of the DRD procedure in his case but HMRC had overruled the objection.

5. These undertakings were confirmed when the Finance Bill clauses were published for consultation in December 2014. However, we were dismayed that no specific mention was made of the promised safeguards on the face of the Bill itself. Admittedly, HMRC expressed their intention to remove vulnerable debtors from the process in the Explanatory Notes (EN para 4) - but an expression of an intention, however worthy, is no substitute for incorporating a robust safeguard into the law.

6. When the Bill was laid before the House of Commons after the General Election, we opened discussions with HMRC about how best to protect the vulnerable minority by incorporating safeguards into the legislation. Our discussions were fruitful and we are grateful to the HMRC team for the open-mindedness and transparency with which they approached this issue.

The Government Amendment

7. Amendment no 12 provides that before HMRC can exercise their powers to issue a notice to a deposit taker requiring it either to provide information about the debtor’s accounts, or to put a hold on funds belonging to the debtor, HMRC must first consider whether, to the best of their knowledge, the debtor is at a particular disadvantage in relation to his HMRC affairs. If so, HMRC must take that into account in deciding whether or not to exercise the power in question. There is also an obligation for HMRC to publish guidance on what constitutes whether a person is at a particular disadvantage in dealing with their HMRC affairs. Amendment no 11 requires HMRC to make a statement about their compliance with the above statutory obligations when issuing a hold notice to the deposit taker.

8. Ideally, we would have liked the amendment to exclude the vulnerable debtor unequivocally from the DRD process. This amendment stops short of doing that, but it does at least require HMRC to actively consider whether a person who owes a tax or tax credit debt is at a particular disadvantage, and to take that into account when deciding how to collect the debt. It recognises the needs of those who for various reasons cannot cope with their tax affairs and indebtedness, who are a very different population from the deliberately non-compliant.

9. The guidance referred to in new para 4A(3) will set out the factors that HMRC will be required to take into account in determining whether a person is at a particular disadvantage. We are given to understand that HMRC will consult with external bodies when drafting this guidance. The fact that the guidance is mentioned in the legislation means that a judge is alerted as to its existence and can make use of it. Arguably a more satisfactory way of proceeding would have been to adopt the technique used in (for example) the Equality Act 2010 which provides (section 1(2)) that ‘in deciding how to fulfil [its public equality duty], an authority must take into account any guidance issued by a Minister of the Crown’ – in other words, positively requiring a judge or other authority to have regard to the guidance. But we are content that the clause as drafted is far more effective than simply issuing the guidance ‘behind the curtain’, as it were, with no reference to it in the legislation at all.

Other matters

10. Our CIOT and ATT colleagues have also sent in briefings, which we fully support. We would like in particular to endorse the following from the CIOT briefing:

11. Joint accounts and nominee accounts (para 15 onwards of the CIOT briefing). We echo particularly the CIOT’s concern that HMRC might unwittingly target an account which the debtor holds as a nominee, or attorney, for another person. An attorney account would normally be designated as such and the name of the donor of the power would also appear. In such situations the deposit taker would be expected to alert HMRC that the account was held by the debtor as an attorney. But where (for example) a son holds an account jointly with his elderly mother, the account would normally bear the names of both son and mother, and that way HMRC might be alerted to the fact that the money in the account did not belong to the son but to the mother. Nevertheless, if HMRC drew the conclusion that the presence of both names indicated it was a joint account, they might target 50% of the money in it, and the elderly mother would not be in a position to object or to prove herself at a particular disadvantage so would not be able to claim the protection of para 4A (as the CIOT point out in para 17 of their briefing). The situation would be even worse for the mother if the son holds the account in his sole name without the customary designation of an attorney. Unless the bank itself alerts HMRC, there is no way for HMRC to find out that the money in the account belongs to anyone other than the son whose name is on the account.

12. Special relief. This is a relief of ‘last resort’ where HMRC have issued a ‘determination’ to a taxpayer who (for whatever reason) has failed to submit a tax return, and the taxpayer has not responded to the determination within the time allowed, so that the liability shown in the determination (which is usually estimated, and almost always excessive) becomes due and payable. In such cases, the law allows the taxpayer to submit a self-assessment out of time and claim ‘special relief’ which should be granted if it would be ‘unconscionable’ for HMRC to pursue the full sum in the determination. For example, the courts have held that if the full amount in the determination is very much in excess of what the taxpayer’s liability would be if he had submitted a tax return on time, then it might be unconscionable for HMRC to pursue it. If a taxpayer is subject to the DRD procedure for a debt which appears in a determination but for which the taxpayer has subsequently been granted special relief, it is only fair that this should be one of the grounds on which the taxpayer can formally object to the use of the procedure, as the CIOT point out in para 26 of their briefing.

About the Low Incomes Tax Reform Group

13. The Low Incomes Tax Reform Group (LITRG) is an initiative of the Chartered Institute of Taxation (CIOT) 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. Everything we do is aimed at improving the tax and benefits experience of low income workers, pensioners, migrants, students, disabled people and carers.

14. LITRG works extensively with HM Revenue & Customs (HMRC) and other government departments, commenting on proposals and putting forward our own ideas for improving the system. Too often the tax and related welfare laws and administrative systems are not designed with the low-income user in mind and this often makes life difficult for those we try to help.

15. The CIOT is a charity and the leading professional body in the United Kingdom concerned solely with taxation. The CIOT’s primary purpose is to promote education and study of the administration and practice of taxation. One of the key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities.

October 2015

[1] See LITRG’s response to the consultation document ‘Direct Recovery of Debts’, 29 July 2014 (

Prepared 16th October 2015