Direct recovery of debts
The Government plans to introduce new powers allowing HMRC to directly raid the bank accounts of tax debtors, focusing on those who owe at least £1,000 and have been contacted multiple times to demand payment.
HMRC would not be able to empty out accounts, but would have to leave a minimum of at least £5,000 across all accounts held by the taxpayer. There will also be other safeguards intended to ensure that direct recovery does not cause hardship.
The measure has however, been criticised for its potential knock-on effects, raising concerns that businesses whose accounts were raided might not have enough left to pay staff, as well as for the possibility that safeguards might not be sufficient to prevent HMRC from making mistakes. It also raises the prospect of HMRC using direct recovery to settle debts in preference to other creditors where the debtor becomes insolvent.
Consultation on the measures closes on 29 July 2014 and insolvency practitioners, as well as anyone else on whom direct recovery may have an impact, such as banks and building societies, should keep an eye out for future developments.
The Government believes that for many taxpayers who enter into tax avoidance schemes, the real attraction is the chance to defer payment of tax – often for years – while disputes and appeals are ongoing, rather than the chance that the scheme will actually succeed.
Draft legislation has now been published in the Finance Bill 2014 which is intended to allow HMRC to recover tax upfront, rather than waiting for the outcome of appeals.
While, as above, there will be numerous safeguards on HMRC’s use of its powers, accelerated payment applies to existing schemes as well as to those entered into after the legislation comes into force. Any taxpayers who have entered into avoidance schemes should therefore make sure they can pay potential tax liabilities as soon as the legislation comes into force this summer.
Accelerated payment – how it works
Where there has been a “final” judicial ruling against a scheme – meaning a ruling which has not been appealed, even if the case goes no further than the First Tier Tribunal – HMRC will have 12 months to issue a “follower notice” to other taxpayers. This can be issued against participants in any scheme sufficiently similar for the judgment to apply.
Accelerated payment notices
Where HMRC has either issued a “follower notice,” allocated a DOTAS (Disclosure of Tax Avoidance Schemes) reference number to a scheme, or issued a counteraction notice under the General Anti-Avoidance Rule, HMRC can then go on to issue an “accelerated payment notice”.
If the notice is not withdrawn, the taxpayer must pay all the tax HMRC considers due, on the assumption the avoidance scheme is not effective.
The taxpayer will have 90 days to appeal the notice to HMRC, but will have no further right of appeal if HMRC then confirms it. If the avoidance scheme ultimately succeeds in court, HMRC will however pay the money back with interest.
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