Policy paper

Direct recovery of HM Revenue and Customs debts from debtors' bank and building society accounts

Published 8 July 2015

Who is likely to be affected

Individuals and businesses who have debts of over £1,000 payable to the Commissioners for Revenue and Customs under or by virtue of an enactment or under a contract settlement.

General description of the measure

The measure will allow HM Revenue and Customs (HMRC) to secure payment of tax and tax credit debts directly from debtors’ bank and building society accounts that have a minimum aggregate credit of £5,000. Additional safeguards have been included following consultation.

Policy objective

This measure will contribute towards making the tax system fairer for those who pay what they owe on time. It will enable HMRC to recover debt directly from cash held in the bank and building society accounts, in credit, of debtors who have the means to pay but choose not to do so. This includes funds held in cash in Individual Savings Accounts (ISAs).

Background to the measure

This measure was announced at Budget 2014.

A consultation document was published on 6 May 2014. The formal consultation was open until 29 July 2014.

Following consultation and feedback from stakeholders, including professional and representative bodies, the safeguards for Direct Recovery of Debts (DRD) were strengthened further. These revised safeguards were set out in the government’s consultation response published on 21 November and draft legislation was published on 10 December 2014.

This tax information and impact note (TIIN) updates and replaces the TIIN published on 8 July 2015.

Detailed proposal

Operative date

This measure received Royal Assent on 18 November 2015.

Current law

Currently, HMRC does not have the power to hold and then remove debts directly from the bank accounts of debtors (who have the means to pay, but choose not to do so), without first applying to the courts for a Third Party Debt order in England and Wales, or seeking a garnishee order from the Enforcement of Judgements Office in Northern Ireland.

Under current law, HMRC does have the ability to seize ‘physical’ assets of a debtor to sell at auction if a debt is not paid. In England and Wales HMRC does this under the Taking Control of Goods regime (see Schedule 12 of the Tribunals, Courts and Enforcement Act 2007), whilst in Northern Ireland HMRC continues to exercise older distraint powers (see section 61 of the Taxes Management Act 1970).

This measure will modernise HMRC’s debt collection powers by introducing a power to recover debt directly from cash held in the bank and building society accounts, in credit, of debtors who have the means to pay but choose not to do so. This includes funds held in cash in ISAs. This is analogous to HMRC’s existing powers to seize and sell ‘physical’ assets.

Proposed revisions

Legislation will be introduced in Summer Finance Bill 2015, to enable HMRC to collect tax and duties from credit balances in accounts to satisfy HMRC debts.

Secondary legislation on the Enforcement by Deduction from Accounts (Information) Regulations will come into force on 25 January 2016.

HMRC estimates DRD will apply to around 11,000 cases per year. HMRC will only take action against debtors who owe over £1,000 of debt. HMRC will always leave a minimum aggregate of £5,000 across debtors’ accounts, and will only put a hold on the funds in the affected account up to the value of the debt.

Summary of impacts

Exchequer impact (£m)	2015 to 2016	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020
	+20	+100	+120	+100	+80
	The figures include those for 'Direct recovery of debts', which are set out in Table 2.1 of Budget 2014 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2014. The figures include the adjustments set out in Table 2.1 of Autumn Statement 2014, which cover the effect of the safeguards, as part of HMRC: operational measures, and have also been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2014. The figures also include adjustments for the impact of other measures and updated analysis at Summer Budget 2015.
Economic impact	The measure is not expected to have any significant economic impacts.
Impact on individuals, households and families	This measure will affect around 11,000 individuals (including self-employed taxpayers) and businesses a year. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts	This measure will not impact disproportionately on people with any of the legally protected characteristics.
Impact on business including civil society organisations	This measure will impact on non-compliant individuals and businesses with debts over £1,000 who have not complied with their legal obligations. Deposit-takers (e.g. financial institutions) will be required to provide information to HMRC and hold and transfer sums from customers' accounts to HMRC. The administrative costs of doing this are expected to be negligible and the legislation provides for the ability to introduce regulations to enable deposit-takers to re-coup some of their costs by deducting a small administrative fee from debtors' accounts.
Operational impact (£m) (HMRC or other)	The additional costs to HMRC of implementing this change are expected to be £800,000 over 5 years.
Other impacts	Justice impact test: the measure includes a right of objection to HMRC, followed by a right of appeal to the County Court. It is estimated that approximately 200 objections to HMRC will be generated each year. A small number of these may be followed by appeals to the County Court which will have an impact on HM Courts & Tribunals Service (HMCTS). HMRC has worked closely with Ministry of Justice and HMCTS to ensure the County Courts are prepared for this small increase in cases. Small and micro business assessment: the measure will have no impact on small and micro businesses. Other impacts have been considered and none have been identified.

Monitoring and evaluation

The government has committed to an HMRC led review of this measure after two years of operation, to be laid before Parliament.

Further advice

If you have any questions about this change, please contact Ademola Adetosoye on Telephone: 03000 586040, email: ademola.adetosoye@hmrc.gsi.gov.uk.