Robust safeguards needed for tax debt recovery plan

Robust safeguards will be needed if plans to automate the recovery of lower-value tax debts from taxpayers who have persistently not engaged with HMRC go ahead, chartered accountancy body ICAEW has warned.

The government has proposed the extension of its enforcement powers to recover lower-value debts from the bank accounts of some individuals and businesses who have continually not engaged with HMRC.

HMRC estimates that some one in 10 taxpayers do not pay their tax liabilities on time, with £2 billion in low-value debts uncollected after multiple attempts.

In response to the consultation, which closed last week, ICAEW said it was broadly supportive of the measure as a way to reduce the tax gap. However, the Institute raised concerns about HMRC’s ability to manage the process effectively.

ICAEW recommended that if the proposal goes ahead, robust safeguards should be in place to ensure that the debt being recovered was genuine and not related to HMRC processing errors or delays. HMRC’s analysis indicates that around 4.8 million individuals and companies have tax debts below or equal to £5,000 for individuals and £10,000 for businesses, representing approximately 11.5 million debts with a total value of around £4 billion.

Richard Jones, ICAEW Senior Tax Technical Manager, said “As a general principle, we support HMRC taking action to close the tax gap and recovering genuine tax debts that remain outstanding, despite consistent efforts to recover them.

“However, if HMRC is to introduce this measure, it is vital that safeguards are introduced to ensure that action is only taken to recover genuine debts from customers with the means to pay them.”

Additionally, the instalment amount sought from HMRC each month should be affordable and taxpayer support needs and vulnerabilities should be accommodated for, ICAEW said. HMRC wants to ensure that it only recovers amounts it considers are affordable for the taxpayers affected. However, the Institute noted that HMRC does not currently have sufficient information to accurately assess a taxpayer’s ability to pay, and their level of vulnerability. There should also be sufficient routes for taxpayers to lodge objections, set out in legislation, alongside guidance to ensure that taxpayers are aware of their rights and obligations.

On pre-deduction notice periods, ICAEW said that it did not agree with the currently proposed 14-day notice period, as it would not be enough time for taxpayers to respond. The Institute recommended that there should be at least 30 days for taxpayers to respond to the pre-deduction notice, and then at least one month’s notice following the end of the objection period, before any payment is taken.