In this year’s budget the government proposed a new Direct Recovery of Debts (DRD) scheme. This would allow HMRC direct access to personal and corporate bank accounts and the power to seize unpaid taxes without having to apply for court approval.
Table Of Contents
Who would be targeted by DRD
The scheme is only expected to recover around £93 million per year – smaller than 0.02% of all tax receipts.
The proposed scheme has been heavily criticised by many business lobby groups, legal practitioners, MPs, and even members of the Treasury Select Committee.
The Federation of Small Businesses (FSB) has warned that inaccurate or outdated HMRC records could lead to small businesses having money deducted from their accounts, reducing their cash-flow and putting them at risk. Businesses are clearly worried about inaccuracy as there are regular instances of HMRC chasing for debt in error.
It is well recognised that HMRC don’t have the best track record of accurately determining which taxpayers owe money and what amounts they owe.
With small firms only just recovering from the increased regulatory burden of Real Time Information (RTI) on their accounts, this proposed scheme is only going to escalate the impact, especially with the introduction of pension auto enrolment.
There is a huge variance in cash-flow between different types of businesses and the limited resources available to HMRC to effectively implement these proposals is also questionable.
HMRC Considerations & Actions
When HMRC identifies a suitable account for DRD, it will:
- Notify the bank or building society to freeze funds up to the value of the debt.
- The account holder will then be notified.
- The account holder will then have 14 days (from the date of notification) to either pay by other means or object.