Direct recovery of debt

By Tolley
VAT_tax_img5

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

  • Direct recovery of debt
  • Background
  • 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 debt?

Background

Since 18 November 2015, HMRC has had the ability to instruct banks and building societies to deduct amounts to settle businesses and individuals 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 debt’ (DRD). Whilst 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 businesses, or their advisers, are familiar.

More information on the background to the introduction of DRD can be found in HMRC Issue Briefing: Direct Recovery of Debts .

Please note that the term “taxpayer” or “person” below refers to both businesses and individuals.

Summary

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

  • the taxpayer owes tax debts (including VAT) totalling £1,000 or more, which HMRC has been chasing by post and by telephone
  • 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)
  • 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
  • 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’
  • HMRC must, and the deposit-taker may, then provide full details to the taxpayer and any affected third party,

More on HMRC powers: