Direct recovery of debt

Produced by Tolley

The following Value Added Tax guidance note Produced 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
  • Options for a joint account holder or beneficial owner
  • Making objections
  • More...

Direct recovery of debt

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

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:

  1. the taxpayer owes tax debts (including VAT) 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

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