City lawyers have expressed ‘fundamental objections’ to government plans to allow HM Revenue & Customs to recover tax and tax credits directly from debtors’ bank accounts.
An HMRC consultation on new powers for direct recovery of debts, which would give collectors access to individual savings accounts, closes tomorrow.
The government says the change will help to recover debts from the accounts of debtors who choose not to pay despite being able to do so.
But the City of London Law Society has warned that the proposals, introduced in this year’s budget, are ‘seriously misguided’ and could impact on innocent taxpayers.
A consultation response, written by the revenue law committee, cites two key objections: the potential for mistakes to be made by HMRC and the fact it will be HMRC and not the courts making decisions.
The CLLS also suggests the proposals could be vulnerable to a challenge under the Human Rights Act.
‘We think the proposals are deeply flawed and they also represent a dangerous precedent regarding the balance of power between HMRC and taxpayers,’ concluded the response. ‘We are not convinced that such fundamental and draconian proposals will achieve their intended goal.’
The CLLS said the consultation document fails to say how the change will be legislated for and calls for details to be set out in primary legislation subject to parliamentary scrutiny.
The response rejects the analogy with child maintenance debt recovery, as the branch dealing with debt will be operating the system, rather than acting as an intermediary between two parties.
The potential for mistakes is also raised, with the CLLS regarding it as ‘impossible’ for an organisation of the size and complexity of HMRC to work without errors.
Mayfair firm Gordon Dadds, in its consultation response, argued the plans will harm the relationship between banks and their clients, could see private financial data misused and will lose the independence and scrutiny of the judicial system.
The response added: ‘Recourse to the courts in pursuit of debt is a remedy open to us all, so why should a government department bypass this simply because it’s easier and cheaper for them?’
HMRC has stated that 10% of taxpayers either file late or not at all, with 17,000 cases per year likely to be affected.
David Gauke, exchequer secretary to the Treasury, said the proposals will ‘modernise and strengthen’ HMRC’s ability to recover tax and tax credits.
He noted tax authorities in many advanced economies already use similar powers, and that the change has ‘strong safeguards’ to ensure it is targeting the truly non-compliant.
The power will be exercised only against taxpayers owing more than £1,000 and a minimum of £5,000 will be left in accounts after the debt has been recovered.
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