Tax raid on accounts is wholly unacceptable, HMRC told

Giving the taxman the power to seize unpaid tax from bank or building society accounts and ISAs without “some form of prior independent oversight” would be “wholly unacceptable.”

Speaking on Friday, the Treasury Select Committee said the issue of no oversight must be dealt with before the power to let HMRC raid accounts without applying to a court is granted.

MPs on the committee want a new ombudsman or tribunal set up for when HM Revenue & Customs wants to use the Direct Recovery of Debts power, or they say it must use the courts.

“Exceptional powers such as this require prior independent oversight. The government must demonstrate that it has dealt with the committee’s concerns before proceeding.”

The MPs added that it wasn’t fair to liken the power to a measure that lets the Department for Work & Pensions take money from people’s bank accounts to pay child maintenance.

In a rebuff to chancellor George Osborne, who made the parallel, the committee clarified that the DWP has such a power so that it can act as an intermediary between two individuals.

The MPs reflected: “HMRC would be acting not as an intermediary between two individuals but rather in pursuit of its own objective of bringing in revenue for the Exchequer.”

Simon Wilks, tax partner at PricewaterhouseCoopers (PwC), says there are other practical consequences of the DRD power that have not been fully thought-through.

“In the case of joint accounts HMRC will assume the money is held equally, so they could end up taking money that doesn't belong to the taxpayer and therefore undermining the principle of independent taxation,” he warned.

“The proposals could allow HMRC to take money in preference to other creditors which will be a cause for concern for all creditors.”

As a result, he believes that “strong safeguards” will need to put in place if the power is granted, and should be accompanied by a costs-benefits analysis, although HMRC might not like the findings.

Wilks explained: “Any benefits from these proposals are far outweighed by the potentially extremely serious consequences for individuals and businesses if errors are made.

“Under the current plans there will be no compensation for these serious consequences; errors can and do occur.”

The committee agrees, saying that safeguards for DRD must be considered in addition to those already proposed, because the power greatly relies on HMRC making accurate assessments.

The MPs said: “This policy is highly dependent on HMRC’s ability accurately to determine which taxpayers owe money and what amounts they owe, an ability not always demonstrated in the past.”

To ensure HMRC cannot act erroneously or with impunity, the MPs say the additional safeguards might include an award of damages on top of compensation, and disciplinary action in cases of abuse of the power.

In the end, PwC envisages that DRD procedures for HMRC will “look like a streamlined version of their current ability to recover tax with the safeguard of a court.”

The firm adds that, assuming it is like that which governs any other creditor, the procedure should be workable, but it also thinks HMRC could possibly achieve its goals using existing frameworks.

Whether it can or not may be addressed, among other issues around DRD, in a forthcoming evidence session between the Revenue and the committee, which the MPs intend to hold shortly.

At that time, the tax authority has been told by the MPs that they would like to conduct a review to ensure its powers “are no more than are sufficient to enable HMRC to achieve its objectives.”

The DRD power is bound to be a case in point -- while it will raise only a small percentage (0.02%) of the total tax that the department collects, accountants fear it could have a major impact on people’s borrowing power and credit rating, especially if it used in error.

May 12, 2014
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