Direct recovery of debts

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Direct recovery of debts
  • Summary
  • Relevant sum
  • Face-to-face meeting
  • HMRC issues an information notice to the deposit-taker
  • HMRC issues a hold notice to the deposit-taker
  • Options for the taxpayer
  • HMRC issues a deduction notice to the deposit-taker
  • Penalties for the deposit-taker
  • What if it is found that the relevant sum is not due?
  • Scotland
  • How will HMRC use direct recovery of debts?

Since 18 November 2015, HMRC has had the ability to instruct banks and building societies to deduct amounts to settle taxpayers' tax debts directly from their bank accounts.

Ever since this proposal was first announced in Budget 2014 it has been referred to as ‘direct recovery of debts’ (DRD). While the legislation uses the term 'enforcement by deduction from accounts', this guidance note refers to the provisions as DRD, as this is the term with which advisers are more familiar.

This guidance note discusses the DRD provisions as they apply to individuals.

Summary

Broadly, the DRD process (discussed in detail below, along with the meaning of the important terms) can be summarised as follows:

  • 1)the taxpayer owes tax debts totalling £1,000 or more, which HMRC has been chasing by post and by telephone
  • 2)HMRC visits the taxpayer to confirm that the debt (the 'relevant sum') is due and to check whether the taxpayer is 'vulnerable' (no vulnerable taxpayer will have tax debt collected via DRD)
  • 3)HMRC issues an ‘information notice’ to a 'deposit-taker', which requires the deposit-taker to provide details to HMRC of all accounts held by the taxpayer
  • 4)HMRC issues a ‘hold notice’ to the deposit-taker, which requires the deposit-taker to (i) either freeze funds up to the amount of the 'relevant sum' or transfer the relevant sum into a suspense account, and (ii) notify HMRC of the ‘held amounts’
  • 5)HMRC must, and the deposit-taker may, then provide full details to the taxpayer and any affected third party of the held amounts in relation to his accounts
  • 6)the taxpayer and any affected third party then has 30 calendar days to make objections to the hold notice
  • 7)if an objection is made, HMRC has 30 working

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