Our members frequently say that they consider taxes on both businesses and individuals are too high.
Accordingly, tax compliant businesses are increasingly frustrated that a very small minority of non-compliant taxpayers appear to gain financial advantage by successfully postponing or avoiding payment of their undisputed tax liabilities despite having the means to meet these liabilities. This unfair financial advantage could not, of course, arise for the overwhelming majority of our members who settle their personal taxation liabilities through the PAYE system.
It is, however, fair to state that our members would be concerned if insufficient protections were included in the DRD proposals to ensure, as far as is possible, that no compliant taxpayers or those who are genuinely unable to meet their tax liabilities are inadvertently caught by the DRD proposals. We have made suggestions for further protections below.
We have received no comments concerning the perception that DRD in some way threatens perceived human rights or, indeed, Magna Carta but we are, of course, aware that some commentators make much of these issues. Moreover, we consider that there is little practical difference between the proposed measures concerning tax liabilities met by payment taken from a taxpayer’s bank account and the longstanding ability for HMRC to seize such taxpayers goods.
We appreciate the cost issues arising where HMRC pursue tax liabilities using the existing county court judgement approach and consider that the collection costs of taxes ought to feature in a prominent position to ensure that the tax collected, net of collection costs, is optimised.
We also consider that seizing the goods of taxpayers’ goods is inherently an expensive and financially unsatisfactory approach inferior to the DRD proposals because, inter alia, of the high transaction costs and frequent mismatch between the replacement costs of the items to the taxpayer and the amounts realised from their resale. Indeed, we consider that in any case where seizure and sale of goods by HMRC was, with the benefit of hindsight, seen to be inappropriate, we consider that HMRC ought to be required to reinstate those goods or, if not possible, to provide generous financial compensation to the taxpayer concerned.
Paragraph 2.33 & Annex A
We welcome HMRC’s willingness to learn from other successfully western economies (such as Australia, Canada, Sweden and the USA) on how to collect agreed taxation liabilities without excessive collection costs arising. Accordingly, we do not agree with some commentators that the DRD proposals represent some form of erosion of the rights of UK citizens under the common law or international conventions. No such ‘thin end of the wedge’ overriding concerns appear to have become a genuine threat in the economies listed which already apply variations of DRD.
3. The Process
We acknowledge the authentic attempts to include sensible parameters for the application of the DRD proposals but we recommend that these are flexed for an initial period whilst experience is obtained by HMRC on DRD to reduce the scope for application in unsuitable circumstances. We recognise, of course, that this would reduce the tax collected by the DRD proposals but consider this to be a price worth paying for an initial period of, say, three/four years whilst practical experience is accumulated by HMRC. Our recommendations are that:-
- The minimum threshold for the collection of agreed tax debts under DRD is increased from £1,000 to £2,500
- A minimum of £10,000 (rather than the £5,000 proposed) is left in the taxpayer’s bank account. We acknowledge, however, that even £5,000 is well above international norms. [Question 3]
- The period during which the bank is merely required to put a hold on the funds before the tax is collected from the bank account is doubled from 14 days to 28 days; recognising that, in practice, the shorter period might prove to be insufficient. [Question 5]
We consider that the increased parameters recommended suggested above ought to remove authentic challenges that the DRD measures will affect financially disadvantaged taxpayers or those that require more time to commence genuine engagement with HMRC with a view to settling their agreed tax liabilities without undue financial hardship arising.
3.11 Question 1
We have no concerns about HMRC requiring twelve months of account information in these circumstances.
3.12 Question 2
We are sceptical that the deposit taker will be able to respond within five working days and suggest this is doubled to ten working days.
So far as Paragraph 3.14 is concerned, we consider that the proposed HMRC analysis of account information ought to be required much less often if the minimum collection threshold were to be increased to £10,000.
4. Safeguards & Question 9
We agree that the proposed measures necessitate robust safeguards to ensure that, inter alia, any mistakes are promptly rectified.
We assume that a full record will be maintained, documented on a consistent basis, recording details of each attempted contact with the taxpayer.
We also note the proposed notification and appeal systems and consider the proposals to be satisfactory.
Our final recommendation concerns the review of DRD after its implementation.
Additional Proposed Safeguard
We consider that the Exchequer Secretary ought to be required to report annually on the application of the Direct Recovery of Debts Measures as we consider that taxpayers ought to be informed of the outcomes where any new HMRC power is introduced.
Such an Annual Report ought to cover:-
- A full analysis of the circumstances by type where the powers have been exercised
- The principal alternatives collection processes considered and why these were rejected
- Stratified data upon the amounts of tax collected and balances left in the bank accounts quantum, and
- An assessment of the costs and benefits of the Direct Recovery of Debts measures for the year