HMRC should fix debt management arrangements before new powers

A consultation by HMRC proposes a new power to tackle individual debts of up to £5,000 and business debts of up to £10,000 through direct deductions from bank accounts. Responding,¹ the ATT said that any new power should only be used where a genuine tax debt exists and the taxpayer has failed to engage. The most effective safeguard would be to prevent taxpayers from incorrectly reaching the point at which direct deductions are considered.

The Association says it has received feedback that debts are sometimes pursued while claims, elections or reallocations remain outstanding because of HMRC delays or errors. Taxpayers can also struggle to contact HMRC to resolve debt queries, and communication from debt collection agencies acting on HMRC’s behalf is often poor.

It says addressing these issues would reduce the risk of taxpayers being drawn into debt recovery processes unnecessarily and help ensure that any new power is used only where a genuine tax debt exists and the taxpayer has failed to engage.

If the proposals do proceed, the ATT recommends a “confirmed contact” safeguard before a taxpayer can enter the automated deduction process. This could include successful telephone contact, acknowledgement through a Personal or Business Tax Account, engagement through an authorised agent or evidence that a communication has been received. Where contact cannot be confirmed, the case should be referred for manual review rather than progressing automatically.

Jon Stride, chair of the ATT’s Technical Steering Group, said:

“The best safeguard is to stop taxpayers being drawn into debt recovery processes when the amount being pursued may not reflect their true position. We have heard of debts being pursued while claims, elections or reallocations are still outstanding because of HMRC delays or errors, as well as difficulties contacting HMRC to resolve queries.

“HMRC should address these weaknesses in the existing debt management process before taking forward a new power to deduct tax debts automatically from bank accounts. Doing so would help ensure that the power is used only where there is a genuine debt and the taxpayer has failed to engage.

“If the proposals are taken forward, HMRC must also be able to distinguish deliberate non-engagement from cases where communications have not been received or taxpayers have been unable to respond. Some form of confirmed contact should therefore be required before an automated deduction can be made, with cases referred for manual review where contact cannot be established.” 

The ATT also called for: 

• The proposed 14-day Pre-Deduction Notice period to be extended to at least 30 days, in line with the existing Direct Recovery of Debts regime. 
• Joint accounts to be excluded unless HMRC can establish that the funds concerned belong to the debtor. 
• A protected minimum bank balance and a prohibition on deductions that place taxpayers into an overdraft or increase their borrowing. 
• Further testing and research into the reasons taxpayers do not engage with HMRC. 
• Better communication with taxpayers and improved access to Time to Pay arrangements.
• A mechanism to allow taxpayers to request reasonable variations to deduction arrangements without having to pursue a formal objection.
• An independent review stage before cases proceed to the tribunal or courts, helping to resolve disputes more quickly and proportionately.

Notes:

1. ATT consultation response: Proposals to tackle lower value tax debts.