HMRC Direct recovery of debts

Transcription

1 HMRC Direct recovery of debts Response by the Money Advice Trust Date: JULY 2014

2 Contents Page 2 Page 3 Page 4 Page 6 Contents Introduction / About the Money Advice Trust Introductory comment Responses to individual questions HMRC Direct recovery of debts 2

3 Introduction About the Money Advice Trust The Money Advice Trust is a charity founded in 1991 to help people across the UK tackle their debts and manage their money wisely. The Trust s main activities are giving advice, supporting advisers and improving the UK s money and debt environment. We give advice to around 140,000 people every year through National Debtline and around 30,000 businesses through Business Debtline. We support advisers by providing training through Wiseradviser, innovation and infrastructure grants. We use the intelligence and insight gained from these activities to improve the UK s money and debt environment by contributing to policy developments and public debate around these issues. We help approximately one million people per annum through our direct advice services and by supporting advisers through training, tools and information. Public disclosure Please note that we consent to the public disclosure of this response. HMRC Direct recovery of debts 3

4 Introductory comment We welcome the opportunity to comment on the proposals in the HMRC direct recovery of debts consultation paper. We are very concerned by the proposals which we have objections to in principle as the proposals do not appear to be a proportionate response. We would suggest that unless there are robust safeguards over the powers outlined in the paper, that these powers could be used inappropriately, be subject to HMRC error and cause hardship for vulnerable people. We are not convinced that HMRC should use these powers to recover tax credits at all. Given the levels of error identified in the annual HMRC statistical reports, it would seem premature to be adopting these powers of recovery where there is such frequent error in tax credit awards. Also, by the nature of eligibility for tax credits, the taxpayers concerned will be low-income households, and the majority with dependent children. We would add to the concerns expressed by the Treasury Select Committee that the new debt recovery powers would mean that HMRC would be able to determine which taxpayers owed money and how much they owed, and then enforce that decision without any independent oversight being put in place to ensure the recovery action is appropriate and proportionate. This idea arose in the HMRC Modernising powers, deterrents and safeguards consultation paper in but it did not progress following widespread criticism over whether the safeguards were adequate. This is what the Money Advice Trust said in our response to the original consultation paper. We are very concerned that HMRC is considering methods of enforcement that do not require independent judicial scrutiny. We also feel strongly that the power to use direct attachments should not be extended to the recovery of child benefit and tax credit overpayments. This would unfairly impact upon vulnerable, low-income groups in an area where there are huge issues related to the complexity of claims and their histories, transparency of decisions, whether overpayments are recoverable or not, and lack of appeal rights. Although the consultation paper talks of targeting those who deliberately refuse to pay, we see no evidence that creditors, including HMRC, are able to identify and differentiate between those who cannot pay and those who will not pay. 1 HMRC Direct recovery of debts 4

5 In our experience, it is often taken to be the case by creditors that those who do not pay are therefore refusing to pay. However, there are many instances of people in debt who are overwhelmed by and unable to face their debt problems, and therefore ignore all their creditors attempts to contact them. We do not support extending recovery powers so that they are available without sanction by the court or an independent adjudicator, as this may lead to the temptation to use those powers early where lack of contact with a debtor is assumed to infer refusal to pay. In many cases, lack of contact will be masking a debt problem. In the experience of National Debtline and Business Debtline, our clients will often have multiple debt problems and have a variety of bills to pay including other priority debts. As an example, please see our Changing Household Budgets report. 2 Unless HMRC conducts a proper assessment of income, outgoings and assets and liabilities, using an industry standard accepted tool such as the Common Financial Statement 3, it could be unwise to assume that the funds are free and available or that the individuals have indeed the financial means to pay. HMRC in its actions could be tipping people further into debt without a set of robust criteria in place to determine such matters. We have serious concerns that vulnerable people with low incomes but some savings will be at risk of hardship. They may have limited funds in the bank but insufficient wherewithal to pay for legal advice to protect them. We are concerned that the vulnerable who are not financially aware will be the most likely to be affected, whilst the financially acute or those who can afford to pay for advice will get round the rules. It is difficult to see how the rules can be drafted in such a way as to only affect the genuinely well off who are also refusing to pay. We share the concerns raised by others that the proposed new debt recovery powers for HMRC will represent a return to Crown preference where the tax authority were paid ahead of other creditors. Will the effect be to make HMRC a preferential creditor? The Treasury Select Committee 4 in their Budget 2014 report says that the proposals are of serious concern. We share the concerns raised. The summary of their concerns can be found at the end of this response. We also have a variety of concerns as to whether the proposals are feasible and equitable in practice. These relate to a number of implementation issues such as the approach to joint accounts, the ability to accurately determine who the money belongs to, third-party funds and the time limits for taking action. We have set out our concerns in our response to the questions below HMRC Direct recovery of debts 5

6 Responses to individual questions Question 1 Is 12 months worth of account information sufficient for HMRC to establish how much the debtor needs to pay upcoming regular expenses? The answer to this may depend upon the pattern of account use, or how the person s business operates and whether this is on a 12 month cycle. Whilst this may be sufficient for some businesses, the needs of seasonal businesses will need to be considered. Such decisions can also have detrimental impact on the cash flow of a small business. We would also suggest it would be reasonable for HMRC to also take the client s last tax return into account rather than just the account activity. Question 2 Is 5 working days sufficient time for deposit takers to comply with account information requests? 5 working days would appear to be a very short time for the deposit taker to supply this information. However, we will leave it to the banking and savings providers to make the case for what length of time would be sensible for them to be able to comply with such requests. There needs to be a provision for banking providers to challenge the information request. It is also imperative that evidence is provided that the amount claimed has been independently verified as due and owing and not just based on an estimate of tax owed, or a tax credit overpayment that has not been independently verified. Question 3 By leaving a minimum balance in a debtor s account, HMRC needs to strike a sensible balance between avoiding putting taxpayers into hardship and collecting money owed to the Government in an efficient manner. Is 5,000 a proportionate and appropriate sum to meet these objectives? We appreciate that the policy intention set out at point 3.15 in the paper is as follows: HMRC will look to prioritise recovering debt from accounts that appear to be used primarily for savings over those that appear to be used for day-to-day expenses. However, there would need to be very strong compulsory rules and guidance put in place to make sure that HMRC does not take money from accounts that are used for an individual s day-to-day living expenses, household mortgages, household bills and so on. We do not think it acceptable to take money from any account that is in current use for a small business. The money in such an account could indeed represent cashflow for employee wages, suppliers bills and so on. We can see that leaving 5,000 in an account that is clearly a savings account would appear to be a proportionate safeguard at first glance. However, there could be many reasons for HMRC Direct recovery of debts 6

7 someone to hold more than 5,000 in an account that are entirely legitimate such as money held for family members, but does not mean that the money is genuinely available, or that seizing funds would not cause undue hardship. Question 4 What changes will deposit takers need to make to their systems to administer this policy and will this impose any administrative burdens? We are unable to comment on this question. Question 5 Is 14 days an appropriate length of time for the debtor to object to HMRC or pay by other means? We do not agree that 14 days is an appropriate length of time for someone to put in an objection. The paper suggests that the time period allowed will be 14 calendar days from the date of the letter notifying them of the held funds. In practice, by the time the letter arrives, there is likely to be substantially less than 14 days for anyone to take action. We would suggest 28 days would be a more appropriate time to allow action to be taken. This would give someone time to seek independent advice, and to look at their options. It cannot be straightforward to decide whether there are grounds for an appeal to the independent First Tier Tax Tribunal about the amount of tax due or to establish if there is a legal objection to the liability within a less than 14 day window. It could also take a longer period of time to put together objections and provide evidence of undue hardship or that the debt is no longer due. It may also be difficult to put forward a complete budget and offer to make a time to pay arrangement within such a timescale, especially if there is a need for independent advice. There should at the very least be rules put in place setting out how service will be calculated. For example there could be deemed service rules put in place to allow for the 14 or 28 days to run from the third day after postage. There are deemed service rules under HMCTS rules that may be applicable here. We welcome the suggestion that a dedicated HMRC telephone helpline will be available and included in the notification letter. We suggest that this letter should also contain sources of free, independent advice on tax matters and for help with debt such as TaxAid, Citizens Advice, Business Debtline, National Debtline and so on. Question 6 What would be a suitable time limit for the deposit taker to comply with an order to release funds, either to the debtor or to HMRC? Presumably HMRC would prefer a short time limit at this stage. We would expect deposit takers will want a degree of judicial oversight for the order before they can be compelled to comply. There may be concerns from banks and other deposit takers that demands may be made in error or without independent scrutiny to ensure that the amount is accurate and the person in question does indeed owe the sum claimed. If this is not put in place then the deposit taker HMRC Direct recovery of debts 7

8 will be caught between complying with HMRC powers and their duty to their own banking customers. Will the bank be able to take up the case on behalf of their customer or appeal against the order to release funds? The practicalities of what would constitute a suitable time limit in this case is a question for the deposit taking bank and savings providers to answer as it may depend upon how quickly their systems can work. Question 7 What sort of sanction should fall on deposit takers who do not comply either with the initial notice to supply account information or the instruction to release the held amount to HMRC? We are not able to comment on this question. Question 8 Is protecting a proportion of the credit balances of joint accounts the best way to protect non-debtor account holders? Joint bank accounts should be protected from seizure. Clearly it is better to automatically protect 50% of the sum in a joint account than to take the full amount from the joint account. However, we would expect to see it explicitly laid out in rules that the joint account holder can challenge this 50% assumption. We can foresee many cases where the money in the account is wholly owned by the joint account holder who may not be liable for the debt in any way. There should be a mechanism in place to allow the joint account holder to appeal and on the provision of evidence, that the whole sum (or the proportion claimed) should be released to them. Question 9 Are these safeguards appropriate and proportionate? We would suggest that the safeguards are neither appropriate nor proportionate as they stand. We suggest that at the very least, HMRC must be able to demonstrate that the liability has been independently verified before such action is taken. There should be an easy to access independent appeal mechanism for appealing the ability of HMRC to seize the particular lump sum both by the debtor and a third party. There should also be a requirement to consider other alternative collection methods. There are no safeguards proposed to ensure that the individual has exhausted the appeal process or that the tax is due before action is taken. It is clear from the paper that where the person has not responded to any requests to supply a tax self-assessment, there is nothing to stop HMRC from taking money taken from their account even though it could be a wildly inaccurate estimate of what is in fact due. Similarly many low-income and vulnerable recipients of tax credits will not have appealed or challenged the overpayment amount being claimed. HMRC figures show that there is a high HMRC Direct recovery of debts 8

9 level of error within the tax credits system. 5 They could easily be told they owe more than 1,000 and become subject to this procedure with no checks and balances in place to ensure they do in fact owe the sum claimed. There are no judicial or other safeguards in the proposals to protect people on low incomes who might have particularly vulnerable situations, mental health issues preventing them from engaging with their creditors or where they are struggling with debt problems. As we have said, it is common for creditors to assume that lack of contact is proof of refusal to pay whereas for many of our clients, they are in an overwhelming situation which they find themselves unable to deal with. It is not clear how HMRC intend to differentiate in practice between the two groups and put robust safeguards in place that ensures the vulnerable are not targeted. HMRC have not set out in the paper what safeguards they intend to put in place for third parties if the money held in the account belongs to them. The obvious example here is if the money is held on behalf of children or other relatives. Detailed guidance would be required to set out what type of income would be exempt. For example, regular salary payments should be exempt from seizure. We also would expect that the compensation for losses should include a measure of compensation for losses incurred as well as compensation for interest lost and the protection proposed to ensure there is not a loss of the tax free limit for ISA accounts. 5 HMRC Direct recovery of debts 9

10 The Treasury Select Committee Budget 2014 report summary 244. The proposal to grant HMRC the power to recover money directly from taxpayers' bank accounts is of considerable concern to the Committee. It could develop into a return to Crown preference by stealth. The Committee considers a lengthy and full consultation to be essential. The greater detail provided by the Government on 6 May will need further and extensive examination, and the Committee will take further evidence on this. 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 The Chancellor argues that this measure can be justified because the Department for Work and Pensions already has the right to take money directly from people's bank accounts to pay child maintenance. However, the parallel is not exact: in those cases, DWP is acting as an intermediary between two individuals. 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 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. Incorrectly collecting money will result in serious detriment to taxpayers. The Government must consider safeguards, in addition to those set out in the consultation document, to ensure that HMRC cannot act erroneously with impunity. These might include the award of damages in addition to compensation, and disciplinary action in cases of abuse of the power The ability directly to have access to millions of taxpayers' bank accounts raises concerns about the risk of fraud and error, and this should also be covered by the consultation Following the merger of HM Customs and Excise and the Inland Revenue in April 2005, an extensive review of HMRC's powers, deterrents and safeguards was carried out from 2005 to The Committee believes that sufficient time has now passed to warrant a postimplementation review of these powers. The aim of this review should be to ensure that all the powers HMRC has at its disposal remain relevant and are no more than are sufficient to enable HMRC to achieve its objectives. HMRC Direct recovery of debts 10

11 The Money Advice Trust 21 Garlick Hill London EC4V 2AU Tel: Fax: HMRC Direct recovery of debts 11