HMRC head defends tax recovery plan
The head of HM Revenue and Customs (HMRC) has rejected proposals that taxmen should be required to seek court approval before using proposed new powers to take money direct from debtors' bank accounts.
The influential House of Commons Treasury Committee warned in a recent report that the controversial new power - proposed in Chancellor George Osborne's spring Budget - would be "wholly unacceptable" without a requirement for independent approval from the courts, or an ombudsman or tribunal.
But HMRC chief executive Lin Homer told the committee there was no merit in the safeguard, which she said would give the upper hand to around 17,000 "recalcitrant debtors" who deliberately withhold tax payments for as long as they can in the hope that the expense of recovering the money will mount so high it will be written off.
Ms Homer defended the proposed new power at an appearance before the Treasury Committee, where Tory MP Steve Baker told her he was "horrified" by the plan, and Liberal Democrat John Thurso suggested it would breach the protections of Magna Carta.
Mr Thurso said: "We are talking here about the ability for one organisation of state... To have the unique right to go against the Magna Carta charter and all the other things we have established and to go in and seize - without judicial process or review - a bank account.
"I just want to know if it is justified, because my sense is that Parliament is going to reject it."
The committee's report in May voiced "considerable concern", warning: "Giving HMRC this power without some form of prior independent oversight - for example by a new ombudsman or tribunal, or through the courts - would be wholly unacceptable."
But when chairman Andrew Tyrie asked whether there was any merit in this approach, Ms Homer replied: "No, because that places us back in the position where these recalcitrant debtors know there has to be a court order and they continue resisting.
"If, at the end of the day, we can't progress without a court order, we are in the same place as we are now, so there is no additional power."
Mr Thurso said that HMRC was trying to become "judge, jury and executioner" and to remove legal protections from those who it believes owe tax, simply because it was "slow and expensive" to follow the legal processes.
He demanded to know whether the taxman would pay compensation in full if it removed money from people's bank accounts or ISAs in error and their house purchase fell through or they missed out on a windfall from rising share prices as a result.
Ms Homer said that the size of any compensation payment was likely to be determined by the courts, adding: "In the rare cases where a mistake is made, we would rectify that. That is an important part of the safeguarding."
HMRC had asked the Treasury for the new power in order to deal with a small minority of people who owe an average of £5,800 in tax but do not pay, despite the fact that half of them have £20,000 or more in savings and 5% as much as £100,000.
"I don't think this is against Magna Carta," she said. "I don't think it is substantially different from the PAYE arrangement.
"This is not disputed tax, this is tax that is due, that people who are not subject to PAYE are choosing simply not to pay and they are creating an environment within which the normally very low collection cost of tax is made substantially higher by their action, in a way which in the vast majority of cases is wilful.
"I believe that for the taxpayer as a whole, it is right that we have sufficient powers to stop these limited numbers of people avoiding paying tax."
More than 90% of people pay their taxes, but a minority take the view that they will delay paying for as long as they can get away with it, said Ms Homer.
"We are talking about 17,000 people who don't dispute the tax is due, they just don't pay," she said. "We will have written to them, we will have engaged with them and they just fold their arms and wait for us to take some other action.
"Of course, we can go to court, but the cost both in time and money of going to court will often outweigh or seriously diminish the amount of tax collected. In these cases, we believe with proper safeguards... this is a fairer way of extracting the tax everybody is due to pay."
Ms Homer said HMRC expects to gather an additional £375 million over four years by using the new power, which was similar to systems used in countries including the US, France and Australia, but that she would be "delighted" if she never had to invoke it.
People whose bank accounts are targeted would have had the opportunity to challenge the tax demand in tribunal and will have been contacted by HMRC at least four times, and on average nine times, she said. They will be informed that their accounts are being frozen and given 14 days to engage with the taxman before any money is removed.
At least £5,000 will be left in their accounts and HMRC will work with financial institutions to check whether their spending patterns suggest that a larger sum must be left in order to avoid putting them into hardship.
"The direct recovery of debt is not an approach that we envisage taking at anything like the level other countries do," said Ms Homer.
"We would hope and expect that our ability to use this power - if it were granted - would prompt people to have the discussion with us which we would like them to be having now.
"I would be delighted if we never have to use this power, but what I don't think is fair to the taxpayers who do pay is that a small minority just fold their arms and say: 'It's too hard for you to chase us, we're not going to bother'."