Chorus of disapproval

KEY POINTS

• Proposal to collect tax debt directly from bank accounts.
• Lively debate at the Wyman symposium.
• Treasury select committee concerned where the power might lead.
• Withdraw the proposal.

I can think of many tax proposals over the 30 years I have been in practice that have caused concern among practitioners. I can think of few that have caused such widespread concern as the proposal in paragraph 1.208 of this year’s Budget red book to grant HMRC powers to collect tax debts directly from bank accounts.

The concerns are shared by lawyers and MPs. The issue has been picked up by the broadsheets and by the tabloid press. Tax justice campaigner Richard Murphy has expressed serious concerns. The chorus of disapproval is almost unprecedented.

Let me say some things very clearly at the outset. HMRC must be equipped with adequate and effective powers to collect tax that is due. I pay my taxes and I have no time for those who can pay but who choose not to or who play the system.

I share the frustration of HMRC chief executive Lin Homer’s with those who just fold their arms and wait knowing that the cost of taking action would outweigh the tax. I too would like to see those people dealt with.

None of this, however, means that I am prepared to see HMRC pursue the defaulters at any price.

In his article Just say no!, Keith Gordon described the proposals and safeguards set out in the consultation document Direct Recovery of Debts published on 6 May. He made an eloquent case for the proposals to be dropped.

I think that the proposals and suggested safeguards are generally understood by now. In a nutshell, they would enable HMRC to collect tax debts directly from people’s bank accounts where the debt is “established” and where the department has taken steps to recover it but the taxpayer has still failed to pay.

Wyman

On 2 July, the ICAEW Tax Faculty gave the topic an airing. The speakers for and against were high profile, articulate and well matched.

Tax Faculty chairman Rebecca Benneyworth expressed concerns about the practical application of the power, while the Institute of Directors’ Stephen Herring felt that it was unfair for some to get away with not paying their tax on time at the expense of the vast majority who did.

Barristers Jolyon Maugham and Jonathan Schwartz spoke for and against the measure. Mike Truman reported their speeches in Voted down.

The contributions from the floor were some of the liveliest I can remember.

In response to Stephen Herring’s assertion that chartered accountants are good at focusing on the practicalities, I offered a few practical experiences of my own.

I spoke of the client who was called by a collector to say that he would be visiting to recover a PAYE debt of £9,500 when the amount had in fact been paid on the due date.

Then there was the client who was chased for VAT that had been paid and the elderly clients whose breakfast was interrupted by a collector seeking tax that was not due.

There was also the collector visiting a business and making clear the purpose of his visit to staff when again no tax was due. Then there was the client who called me in some distress to say that a collector had just visited her home and left his card with the house sitter; again the tax had already been paid.

Finally, I shared a more personal experience about the time I received a letter myself threatening a visit to distrain for a non-existent tax debt.

I asked the practitioners in the audience to put their hands up. Then I asked those who had not had experiences similar to those I had described to put their hands down. No one did.

There was a clear and consistent theme to the contributions from the floor: based on their experience this power is going to go wrong. Of 17,000 cases a year even a 1% error rate would equate to 170 of HMRC’s customers receiving a service that no one should receive. The consequences could be horrendous.

I accept that mistakes will always happen but the ones I fear here would be down to two things.

Two issues

First, there is a still a cultural issue in HMRC’s debt management and banking department (DMB). Debt management is a difficult and often confrontational business. It is not something I would wish to have to do for a living.

There is, however, a disturbingly common attitude that, once a debt has been “established” by the relevant part of HMRC, it is DMB’s job to collect it, not to question it or accept that it might be wrong. That needs to change.

Second, there is the question of resource. Every organisation of HMRC’s size needs constantly to review the deployment of resources to ensure efficiency. New processes, digitisation and reorganisation can result in greater efficiency.

You cannot, however, constantly cut resource and pretend that it will have no effect on service delivery. HMRC have seen their resource cut every year since its formation. By next year the department’s manpower will have been cut by almost half in ten years.

If HMRC are to have resource-intensive powers they have to be given the resource to use those powers exactly as intended. I see no political will in any of the main parties at Westminster to recognise that fact.

That makes me even more nervous about seeing HMRC granted this right. If overall resource is not increased, more will be taken from basic service delivery to deliver things like DRD. Poor service delivery affects attitudes to compliance – don’t take my word for it though: Lord O’Donnell said it before I did.

I also suspect that the targets of this measure will ensure that they have no more than £5,000 in bank accounts in their name that HMRC can access.

Treasury select committee

On 8 July the House of Commons’ Treasury select committee held an evidence session on HMRC’s 2014 – 2016 business plan. DRD featured prominently.

John Thurso MP (Lib Dem) led the questioning. He pointed out that the idea had been raised in 2007 and that the then government had decided against it. He wanted to find out who was giving birth to the idea this time and concluded that it was HMRC rather than ministers.

He moved to what might be called the thin-end-of-the-wedge concern, asking why, if HMRC should have the right of access to a bank account, should not a local authority or the DVLA or Television Licencing Authority.

Lin Homer responded that this was not HMRC’s proposition but Thurso clearly saw the danger and refused to let go of the point. He said his sense was that parliament would reject it.

Thurso picked up on the very point that had concerned practitioners at the Wyman symposium, namely the level of error within HMRC (which he described as “small but significant”). What he said next is worth quoting in full:

“I had a very interesting brief from the Tax Bar that points out the number of times that HMRC, in court, have failed to make their case and the courts have rejected what had been put forward. Given that HMRC are asking to become judge, jury and executioner in this, it is not simply about making it a little easier to go and collect debt. Is it not very concerning that you are removing from the process that currently exists the legal process simply because it is slow and expensive? Do people not have an absolute right to expect the law to protect them; not for the many people who are deliberately yanking your chain and not paying, but for the very important minority where you are wrong?”

Thurso had not finished. He noted that the consultation document proposed that HMRC would make an assessment of the debtor’s spending needs before taking money from the bank account.

George Mudie MP (Lab) said this meant that HMRC would be given the opportunity to request 12 months’ bank statements which he described as “an additional intrusion into people’s lives” or, to put it another way, a new information power.

Mr Mudie pressed the HMRC witnesses on the number of cases they had taken to court over debts in the past year. He asked how they could expect the committee to support them taking what he described as unprecedented new powers when they could give no indication that they had used the existing remedy.

The answer given was that the existing one is not used extensively because in value-for-money terms it would not be an appropriate use of taxpayers’ money. Mudie concluded granting the power would be a dangerous thing for parliament to do. 

The committee’s chairman, Andrew Tyrie MP (Con), expressed the committee’s concern that there should be independent oversight.

Heartened by MPs’ concern

As a citizen I was heartened that influential MPs on such a key parliamentary committee understood the issues so well and were prepared to pursue the questioning so tenaciously.

During the hearing HMRC made much of the fact that the power would be used only to collect established tax debts. Odd then that the consultation document’s central example is of a determination of tax due – an estimate – made in the absence of a tax return.

I think there is a real practical issue over the definition of “established”. Other MPs have also expressed concern. Mark Field MP (Con), for example, in the third reading debate said:

“[A] consultation is now under way as to whether HMRC should be given direct access to UK citizens’ bank accounts so that it can claim from source any tax that it believes it is owed. I share the view of many people on the government benches who are concerned that this coalition government is overseeing the transfer of very considerable powers to the state.”

He went on to add that he feared a precedent would be set for future governments, which might well be minded to expand the remit of the power still further.

The nub of the issue has rarely been better put than it was by Jeremy Browne MP (Lib Dem) in the debate on the 2008 Finance Bill, when he said:

“We are trying to strike a balance between, on the one hand, an HMRC empowered to do its job on behalf of taxpayers in order to maximise the revenue accruing to the government through entirely legitimate and legal procedures, and on the other safeguarding the rights of the individual.”

It is essential that our elected representatives guard that balance carefully.

What happens next?

Some say that HMRC will get this power because HMRC generally do get the powers they ask for. Others say that, because DRD is slated for Finance Bill 2015 it will be slipped through with no effective parliamentary scrutiny or debate as part of the post-Budget/pre-election wash-up.

I think the objections to this power are as valid today as they were in 2007. Eminent barristers such as Keith Gordon and Jonathan Schwartz say that HMRC have enough powers already.

Practitioners say there are still too many mistakes for this new power to be safely applied.

Influential MPs are saying the same thing and moreover they do not feel the case has been made and that parliament will reject the proposal. Journalists are unlikely to let it drop either.

For my money, the only potentially acceptable safeguard would be oversight (independent of HMRC) of each application for its use. Yes, that would have a cost attached to it but points of principle often do.

Without that safeguard this is a power too far. The proposal should be withdrawn and completely rethought.

Issue: 4461 / Categories: Comment & Analysis , direct recovery of tax debts , power too far , Investigations