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Extreme new measures have been announced that mean a proposed legislation could grant HM Revenue & Customs (HMRC) direct access into bank and building society accounts by the end of the year. The proposal comes as part of increased efforts to enhance the debt recovery process. However, this is a controversial move that rattled the cages of many who deem the move intrusive and accuse the government of undermining the authority of businesses and individuals in favour of the state.

The ‘bank account grab’ explained

The move was listed in the 124-page Overview of Tax Legislation and Rates document and aims to improve the efficiency of debt recovery and minimise the losses through outstanding tax and tax credit debts. When the legislation comes into force, HMRC will be granted direct access into bank and building society accounts to seize unpaid debts.

Revenue & Customs will be able to recover cash without permission from any debtors who owe £1,000 or more, should they fail to respond to a preliminary hold notice. In the event of no reaction to this hold notice, HMRC will deliver a deduction notice before instructing the bank to transfer the required amount. It is also being given the power to freeze all but £5,000 of a debtor’s assets and the legislation also includes any funds held in cash ISAs.

The announcement was made during the 2014 Budget and is due to come into fruition just months after the chancellor George Osborne delivered the Summer Budget 2015. The changes are expected to come into effect at the end of October 2015 following the party conference recess and now the Summer Finance Bill has been passed.

The Judge

Francis Hoar, barrister from The Taxpayers’ Alliance (TPA) has dubbed the legislation “flawed” and objectionable in principle” and says it will “fly in the face of Magna Carta.” He said:

“The greatest legacy of the Magna Carta is the principle that the executive is subject to the law as much as the people, and yet the direct recovery legislation places the Crown in a superior position to individuals and businesses.

“Most dangerously of all, it treats individual property as the property of the state once the state has determined it so.”

Hoar is not alone in resisting the government’s drastic measures to ensure the payment of tax and tax credit debts. Mike Prendergast, financial adviser at Zen Financial Services is also dumbfounded at the prospect. He said:

“Obviously, if tax is owed to HMRC it should be paid, but I cannot see how this bank account grab would work in practice.

“People may have several accounts and some of these may be joint accounts.”

The Defence

Despite the shade being thrown over the whole operation by those feeling violated by the forceful measures, HMRC are keen to defend its pending legislation. It points out the measures will only be applied to those who have the financial means to withstand it and will only target “debtors who have the means to pay but choose not to do so.” HMRC will only be allowed to access accounts which contain £5,000 or more and must leave a minimum of £5,000 behind across all of the debtors’ accounts.

A Revenue & Customs spokesperson said: “The direct recovery of debt provisions tackle only a small number of people who simply refuse to pay the tax due even though they are well able to. It is not about forcing money out of those who have cash flow problems.”

The government was clearly ready to defend against its inevitable contesters and in the 2014 Budget document wrote: “This measure will be subject to robust safeguards including a county court appeal process and a face-to-face visit to every debtor before they are considered for debt recovery through this measure.”

The HM treasury are predicting that the new legislation will generate an extra £20m during 2015/16 and this figure is expected to rise to £120m in 2017/18.

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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