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Changes to direct recovery of debts raise questions about the power’s practicality
KEY POINTS
- HMRC announce significant changes to direct recovery of debts.
- Legislation will not be included in first Finance Bill 2015, but will be introduced in a Number 2 Bill after the election, with time for consultation.
- No use of direct recovery of debts will be made until there has been a face-to-face meeting with the taxpayer.
- Taxpayers will have a right to appeal to the county court on certain specified grounds.
Does the government response to the direct recovery of debts consultation, released on 21 November, constitute a success for the Power too Far campaign?
While some commentators still seem to be unhappy, I think it does. That is not to say that we have got everything we would have liked, but we have probably got as much as was realistically ever going to be given, provided a few queries are answered satisfactorily.
A quick reminder, first, about the initial proposals put forward by the government. If a tax debt of more than £1,000 were to be established, and there had been no move from the taxpayer to contact HMRC and arrange payment, appeal, or ask for time to pay, the Revenue would have the right to identify a bank account belonging to the taxpayer and to freeze an amount to pay the tax.
The taxpayer would have 14 days to contact HMRC and appeal or explain that the amount was not due. If there was no contact, the money would be taken directly from the account.
Crucially, although the taxpayer would have the right to make representations to HMRC, there would be no independent right of appeal.
Also, although there was an explanation in the original proposals that the taxpayer would have been contacted multiple times by the department, this was not part of the proposed legislation, and the contact would not necessarily have been about the debt – it seemed that the initial request for submission of the tax return would have counted as one contact, for example.
The petition
When we launched the online petition against the proposals, I explained in Widening ripples that it had been deliberately designed to attract support from those with either of two different approaches to the proposals:
“There are some people for whom these powers are simply, as the hashtag says, a power too far, and they will never be acceptable. For those people the most important point is the withdrawal of the proposals, and they would argue in the consultation which followed that there was either no need for new legislation or that it should be something completely different from that currently proposed.
“For others, however, the key issue is the lack of independent oversight prior to the exercise of the new powers. However, the inevitable common ground between both groups is that the proposals should not be included in Finance Act 2015; still less in the draft bill that will be published in just over three months’ time.”
For that reason, the online petition did not specify what changes were needed in the proposed legislation, or indeed whether it should be scrapped.
Instead it called for it to be withdrawn from Finance Bill 2015 and “sufficient time given to carry out a wide-ranging consultation on the problem of deliberate non-payment and potential solutions”.
An implicit assumption in referring to Finance Bill 2015, made explicit in the article, was that it should not be included in legislation to be passed in a hurry before the general election.
With a fixed term parliament ending on 30 March next year at the latest, there is going to be no time to discuss the first Finance Bill. That was why I said in my previous article:
“Even for those who only want to see prior independent oversight introduced, there is insufficient time in the run-up to an election year for such a system to be properly devised and consulted on, at a time when the attention of our political masters is elsewhere. So both sides should be able to support our petition, and to then have the discussions in the consultation period that follows to determine the right way forward. If that involves legislation, it can be in 2016, under a government that has time to concentrate on it.”
The government response says that the new legislation will be brought forward “in 2015, in the next parliament”.
Admittedly this appears to mean that it will be included in a Finance (No 2) Bill 2015 rather than in 2016, but the effect of that is mitigated by the significant detail that has already been given about what changes are already accepted by the government.
Given that we have made significant progress already, and there is time for further discussion and eventually for parliamentary scrutiny, I think it is reasonable to say that we have achieved what the petition asked for.
Two reactions
So, back to those two groups: the ones who wanted the legislation abandoned and those who wanted sufficient safeguards to be introduced. What will their reaction be?
For the first group, the battle will still not be over. The government is still proposing to bring in the legislation, albeit with significantly greater safeguards.
It may, however, be worth considering whether the changes mean that the legislation will in effect be too cumbersome and unwieldy to be of significant use to HMRC, and that it may become yet another piece of legislation that is on the statute books but ignored in practice. More on that later.
For the second group, there is a significant increase proposed in the level of oversight and protection. It may not quite amount to the gold standard of requiring judicial approval prior to any action being taken, but it is a vast improvement.
New safeguards
The first, very practical, step is to say that there will have to be a face-to-face meeting between HMRC staff and the taxpayer before direct recovery of debts is started.
The first mention of this in the response document, at para 2.22, simply says, “The government is therefore guaranteeing that every debtor will receive a face-to-face visit from HMRC’s agents”.
That might give some concern that the visitors would not actually be HMRC staff, but later in the document (the box referred to in 2:63) this is clarified:
“Every debtor will receive a face-to-face visit from HMRC’s field force agents before their debts are considered for recovery through DRD. Only debtors who have received this face-to-face visit, are not identified as vulnerable, and have still refused to pay will be considered for debt recovery through DRD.”
The field force agents are HMRC staff, not independent debt collectors, and it is also promised that they will receive extra training to deal with these cases.
Most importantly, the face-to-face meeting will establish whether the taxpayer is still alive, is at the address to which all the communications have been sent, and has not suffered some major life trauma that has made him or her unable to cope with the complexities of agreeing and paying a tax liability, at least for the time being.
Much more appealing
The second major safeguard is a right of appeal to a county court. It has to be admitted from the start that this is a weaker safeguard than requiring HMRC to go to the courts initially for approval, but it is a much more significant safeguard than HMRC acting as judge and jury in its own case by only allowing “representations”.
In particular, it gives the taxpayer access to the cheapest and easiest of the courts to contest HMRC’s actions, one where it is not always necessary to pay for legal advice.
The main concern I have is that the right to make such an appeal to the country court will only be on certain “specified grounds”, including hardship and the rights of third parties over the account that HMRC has frozen.
It is hard to see why there should be any objection to the county court being given discretion to decide whether HMRC had acted unreasonably in using the direct recovery of debts powers.
If such an argument is not permitted, taxpayers may be in the unenviable position of having to decide whether to fight in the county court, through judicial review, or, in the worst of all cases, both.
And there’s more
There are several further changes and safeguards. The concerns over vulnerable taxpayers appear to have gone home, and there will be a special unit to work closely with the tax charities in DRD cases that affect such taxpayers.
The length of time for debtors to object will be increased from 14 days to 20, although presumably this will also be extended if a county court appeal is lodged.
HMRC have also said that they will only use the power in a limited number of cases in the first year, and will provide full statistics and a review.
Finally, the proposals to allow HMRC to obtain details of the previous year’s transaction on an account have been dropped.
All of which does beg the question of how practical this power will be. HMRC are only going to use it in a limited number of cases, at least initially.
In many of those, HMRC are going to find that, when they try to discuss the debt with the taxpayer face-to-face, either a mistake has been made or the taxpayer is vulnerable and not in a position to deal with their tax affairs. In other cases HMRC are going to face a county court appeal.
So why bother with these powers at all? Why not simply apply to the county court for judgment in the first place in the limited number of cases where the taxpayer really is playing the system?
It may well be that, when faced with the reality of applying the regime, HMRC find that they had a better route to recover debts available to them all along.
