HMRC aims to address the estimated £47 billion tax gap by implementing new measures, including the direct recovery of debts from bank accounts. The tax authority has confirmed it will utilize its ‘Direct Recovery of Debts’ powers, allowing it to recoup funds directly from bank accounts of certain individuals and businesses.
Direct Recovery of Debts Initiative
This initiative targets a small subset of taxpayers, specifically those who can pay their taxes but choose not to. HMRC states that the recoveries will only be enforced after specific criteria are met.
- Debtors must owe £1,000 or more.
- They must have ignored prior communications from HMRC.
- They must have the ability to pay but refuse to do so.
Before any funds are deducted, an HMRC agent will meet with the debtor to verify their financial situation and explore alternative repayment options. This meeting also serves to ensure the individual is not in a vulnerable position.
Tax Gap Overview
As of the fiscal year 2023/24, the tax gap in the UK stands at approximately 5.3%, which corresponds to £46.8 billion. In response, the Labour Party has proposed measures aiming to recover £7.5 billion during this year’s Spring Statement.
History and Usage of Recovery Powers
HMRC has had the authority to use these recovery powers since 2015. However, operations were paused during the COVID-19 pandemic. From 2015 to 2018, only 19 direct recoveries were made, totaling £361,678. The agency asserts that strict safeguards will accompany this recovery approach.
Safeguards for Vulnerable Taxpayers
Following concerns raised by advocacy groups, HMRC is urged to enhance its safeguards for vulnerable individuals. The Low Incomes Tax Reform Group highlights the need for clarity about how vulnerable customers are identified and supported.
Appeals Process
If a debtor disagrees with the recovery, they can file an appeal within 30 days. HMRC guarantees that no funds will be transferred during the appeal period, which typically concludes within 30 days.
Future Developments
The introduction of these powers precedes the Public Authorities Bill, which will later empower the Department for Work and Pensions (DWP) to recover funds from bank accounts using similar orders. Critics argue that such measures may lead to unprecedented levels of state surveillance.
HMRC emphasizes its understanding of individuals experiencing genuine financial challenges and its commitment to offering compassionate support during difficult times.
