Details on a Scheme Allowing HMRC to Collect Outstanding Debts Directly from Debtors’ Bank Accounts
In an effort to tackle tax evasion and ensure timely payment of taxes, Her Majesty’s Revenue and Customs (HMRC) has implemented a new scheme that allows them to collect outstanding debts directly from debtors’ bank accounts. This scheme, known as the Direct Recovery of Debts (DRD), has been in place since April 2015 and has already shown significant success in recovering unpaid taxes.
Under this scheme, HMRC has the power to recover outstanding debts of £1000 or more from a debtor’s bank or building society account, without the need for a court order. This means that taxpayers who have repeatedly ignored HMRC’s requests for payment will no longer be able to evade their responsibilities.
The DRD scheme is a result of extensive consultations with tax advisers, accountants, and various stakeholder groups. It is not intended to affect those who are genuinely unable to pay their taxes, or those who are in the process of repaying their debts to HMRC. This scheme is specifically targeted towards those who have consistently refused to engage with HMRC and have deliberately avoided paying their taxes.
The first step in the DRD process is for HMRC to inform the debtor in writing, giving them at least 14 days’ notice before taking any action. This notification includes details of the outstanding debt, the date by which payment needs to be made, and the amount that will be taken from the debtor’s account. The debtor also has the opportunity to appeal against the decision by providing evidence of their financial circumstances.
If the debtor does not respond or appeal within the given timeframe, HMRC will then issue a second notice, providing an additional 14 days for the debtor to make payment or arrange a payment plan. If the debtor still fails to respond, HMRC can then request a direct payment from the bank or building society where the funds are held. This will only be done after obtaining approval from an independent HMRC officer.
It is important to note that HMRC will only take what is deemed necessary to cover the outstanding debt and any applicable charges. If there are insufficient funds in the account, the bank or building society will still be required to provide details of the debtor’s other accounts, including joint accounts, to HMRC. The debtor will then be given a final opportunity to make payment before the debt is recovered from the other accounts.
In order to protect vulnerable individuals and ensure fairness, there are a number of safeguards in place. HMRC will not recover debts from accounts that jointly hold in excess of £1000, and they will also not recover debts from accounts that only hold funds for a brief period of time, such as student loans or welfare payments. Additionally, they will not take funds from accounts that are solely used for trading or transactions, such as credit card accounts.
Since its implementation in 2015, the DRD scheme has proven to be a successful tool in recovering outstanding debts. In the fiscal year 2016/2017, HMRC recovered over £32 million in unpaid taxes through the DRD process. This has not only helped to close the tax gap, but it has also shown that HMRC is serious about tackling tax evasion and ensuring a level playing field for all taxpayers.
Moreover, this scheme has also been beneficial in enforcing timely payment of taxes. HMRC has reported an increase in the number of taxpayers who now engage with them to settle their debts before resorting to the DRD process. This not only saves time and resources for both HMRC and the taxpayer, but it also helps to avoid the added stress and costs of legal action.
The DRD scheme has received support from various bodies, including the Chartered Institute of Taxation and the Law Society of Scotland. They have recognized the potential of this scheme in promoting fairness, compliance, and encouraging taxpayers to fulfil their obligations. Furthermore, the scheme is endorsed by the Government as a key measure in reducing the tax gap and ensuring that everyone pays their fair share of taxes.
In conclusion, the DRD scheme is a powerful tool for HMRC to recover unpaid taxes and encourage timeliness in tax payments. It is a fair, transparent, and carefully monitored process with a strong focus on protecting the rights of taxpayers. The success of this scheme in its first few years of operation speaks volumes about its effectiveness and highlights the commitment of HMRC in ensuring a level playing field for all taxpayers.
