HMRC’s direct recovery of debt powers bring in £178m tax

HMRC is claiming the new direct recovery of debt (DRD) powers to recover money owed directly from individuals’ bank and building society accounts have raised £178m of tax revenue, against a background of a low volume of complaints, objections or appeals, with the majority settling before direct intervention was needed

DRD was fully implemented into HMRC’s operational process at the end of March 2016, and the tax authority has now provided a review of the first two years of activity, as required under the legislation. When the extension of powers was first introduced, there was strong oppostion from accountants and tax advisers with concerns about abuse of the system. 

The report covers the period from April 2016 until December 2018. HMRC says £178m of outstanding tax debt has been successfully collected, the vast majority after initial contact by letter or phone and before a face-to-face visit.

There were a total of 22,667 cases during that time. Just 1,576 information notices were issued, marking the start of the DRD intervention with a request to an individual’s bank to check monies. There were then 45 hold notices, where HMRC indicates it plans to take money from an account, and just 20 deduction notices.

Over the two years, HMRC took action by removing money directly from a bank account 19 times, collecting £361,678 in total. 

HMRC says this shows DRD has a significant deterrent effect, resulted in payment being recovered early in the DRD process, and is the reason why in only a small number of cases did deductions have had to be made by HMRC.

For the year 2016/17, HMRC anticipated collecting £45m in debt, and actually brought in £44.8m.  For 2017/18 the estimate of £45m was substantially exceeded, with HMRC collecting £72.6m. In 2018/19, up to December last year HMRC had collected £60.7m.

As part of its powers, HMRC is charged with identifying ‘vulnerable’ individuals, and identified a total of 42 vulnerable taxpayers through the DRD process. It says this low figure confirms that current practices, including existing upstream debt management processes, have successfully mitigated against DRD action being used on individuals who may be vulnerable.

As regards objections by taxpayers, the main reasons given were either disputing the tax debt owed or on the grounds of exceptional hardship. Of the eight objections received, seven were not upheld, as an independent review team determined that the correct course of action had been taken. One objection was upheld, as the debtor was able to provide additional evidence of hardship beyond that which they had initially provided to HMRC, so DRD action was stopped.

Of the eight debtors who lodged objections, three took further action by applying to the county courts to appeal HMRC’s decision.

Of these three appeals, one resulted in the cancellation of DRD action and the debtor being repaid the payment deducted, as the debtor had applied to the courts on the penultimate day of the appeal window without notifying HMRC, so HMRC deducted the payment without knowing it was under appeal.

Another appeal case saw the debtor agreeing to pay the outstanding tax debt owed, and the third failed on the basis that the debtor had not provided sufficient evidence for hardship.

In order to address the issue highlighted in the first appeal, HMRC has amended its process by adding an extra three working days for the debtor to receive the letter before taking DRD action, contacting the debtor by telephone once that time is up to advise that deduction is about to take place, and adding to the objection reply letter a request for the debtor to contact HMRC immediately if they file an appeal at court.

HMRC stated in the report: ‘The DRD intervention has achieved its policy objectives and has provided HMRC with a crucial lever in tackling those debtors who deliberately choose not to pay their tax debts, while being able to afford to do so.

‘The low level of complaints, objections and appeals, the extremely low level of these being upheld, and the small proportion of vulnerable customers identified further confirm that the correct debtors are being taken through formal DRD processes.’

Review of the direct debt recovery intervention

Report by Pat Sweet

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