Wait your turn—HMRC powers could clash with insolvency law

Frances Coulson of Moon Beever looks at the implications of HMRCs proposed new powers to access bank accounts to retrieve tax debts

Original news:
HMRC given powers to ‘raid’ bank accounts, LNB News 23/03/2014 7

The Sunday Times, 23 March 2014: Under a set of measures announced in the recent budget, HMRC will have the power to raid the bank accounts of those believed to owe £1,000 or more in tax or tax-credit debts. The government plans to recoup £365m through the direct recovery of debts over the next five years. Critics claim the change means HMRC could take priority over other creditors.

What was announced in the Budget that has caused such hysteria?
Two areas of the Budget look at accelerating payments to HMRC.

Direct access to recoup funds from a taxpayer’s bank account
This is a consultation. Reports suggest there would be a minimum debt level but there would also have to be a minimum level of funds left in the bank account after tax is taken—HMRC say perhaps £5,000. Funds would only be taken after several requests to pay. It depends what the tax is—if declared tax on a return submitted by the tax payer it is bypassing the need to seek judgment and a third party debt order on what is in effect an admitted debt warranted by the taxpayer as due, but is unpaid. Is this really much different to HMRC being able to send in the bailiff on a VAT debt without a court judgment and court issued warrant?

If it is a debt assessed by HMRC and disputed by the taxpayer, then it is either capable of correction by filing of the appropriate return, or it is capable of appeal, and the taxpayer will presumably do one of those things. HMRC says they simply want to tackle those with the means to pay but who simply don't. They do not appear to suggest they will be looking at those who are insolvent. If tax has been demanded and is due, and the taxpayer cannot pay, then they should immediately take advice before HMRC get as far as this and seek insolvency relief. Further we cannot pre-judge that the consultation would not result in seized funds being repaid to an insolvent estate to enable pari passu distribution. I would be concerned if, for example, there was a dispute about overpaid tax credits and these were reclaimed in this way—but it seems unlikely such a taxpayer would have £5,000 sloshing about.

HMRC say it will affect only a tiny number of debtors whom they have contacted a minimum of four times to ask for payment.

Presumably the seizure itself would be capable of appeal or judicial review, including by any subsequently appointed insolvency practitioner.

HMRC are an involuntary creditor who are often the last to be paid. Those who choose not to pay when they can, cost all of us, including the poorest in society. Arguing that it will affect low income or insolvent taxpayers seems to be a step too far—it seems to be aimed at ensuring that those who can pay, do so, to ensure the tax coffers are as full as they should be. Perhaps then the overall tax burden can be reduced, or more done for the low paid.

Tax avoidance
The proposals announced in the previous Budget—to accelerate payment of tax for those engaged in tax avoidance schemes—are to be implemented in the Finance Act 2014 and are announced in more detail. In these cases, drawn out appeals can keep the funds out of the hands of the Exchequer for years. Again, the measures are not aimed at the poor and needy. The government data shows that those affected have a mean gross income of £262,000, compared to £29,000 for the wider income tax paying population. Again these proposals do not seem too radical at second glance. In other circumstances often where there is a tax assessment the tax must be paid anyway pending any appeal unless ‘hardship’ can be agreed/ruled (permitting deferment of tax until conclusion of appeal). It seems unlikely such tax ‘planners’ would meet any hardship criteria.

The general public have expressed unhappiness at tax dodging generally and want the burden to be shared fairly. These measures are aimed at partially achieving that.

Of course representations will need to be made about the scope and mechanics, especially of the consultation measure. However, at least as announced, it does not seem to me to be aimed at the insolvency arena.

Frances Coulson ( fcoulson@moonbeever.com )

 

Interviewed by Eleanor Stephens.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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