Corporate report

Issue Briefing: Direct Recovery of Debts

Published 5 August 2015

The vast majority of taxpayers pay their taxes in full and on time, but a minority are persistent in choosing not to pay, even though they have the means to do so.

This briefing explains how we will level the playing field by recovering tax or tax credit debt directly from the bank and building society accounts of that minority. It details how this will work in practice, and the robust safeguards we will apply. These safeguards are outlined in detail in section 4.

1. Why is recovering debt important?

Individuals and businesses need to pay the tax that is due, or return a tax credit overpayment, otherwise it is unfair on the honest majority. The money we collect is vital to fund public services.

The vast majority of people pay their taxes in full and on time. Last year, we brought in £517.7 billion from about 45 million individual taxpayers and 5.2 million businesses. About 90% was paid on time but around £50 billion was not, and became a debt.

Some people require an additional prompt or reminder to pay what they owe, and a significant number of people pay once we begin to pursue the money owed. Last year, we made around 16 million contacts with debtors by letter, phone, text message or other means, including face-to-face visits.

Direct Recovery of Debts (DRD) affects a small number of individuals and businesses who are making an active decision not to pay, or to delay paying, the money they owe, even though they have sufficient funds in their accounts. We estimate using these powers in a very small minority of cases (around 11,000 times a year among more than 50 million taxpayers).

Many other tax authorities around the world already do this. In the UK, the Department for Work and Pensions (DWP) already uses a similar power for those who fall behind on child maintenance payments.

2. What’s happening now?

The government announced in the 2014 Budget that it planned to allow HMRC to recover tax and tax credits debts from people and businesses directly from their bank accounts using DRD. A public consultation on the proposals ran from 6 May to 29 July 2014, receiving 124 responses.

Following the consultation, the government made a number of changes to how DRD will be introduced. The government also consulted on draft legislation and made subsequent revisions following considerable helpful discussions with external stakeholders. The government has now introduced this draft legislation to Parliament in the Summer Finance Bill 2015 so it can be properly scrutinised.

3. How it will work

This policy will allow HMRC to recover cash directly from the bank and building society accounts, and funds held in cash in Individual Savings Accounts (ISAs), of debtors who owe £1,000 or more (subject to the safeguards that are detailed in section 4). Following discussions with stakeholders, the government confirmed that debt recovery through DRD will not apply to stocks and shares ISAs.

Our own research reveals that the debtors who will be affected by DRD owe, on average, more than £7,000. Almost half of those debtors have more than £20,000 in their accounts.

4. The safeguards that will be in place

The government is including very stringent safeguards to ensure that debtors do not suffer undue hardship once money is taken directly from their accounts and that adequate protection is in place for vulnerable customers. This includes:

• only taking action against those who have established debts, have passed the timetable for appeals, and have repeatedly ignored our attempts to make contact - anyone who disputes the amount owed has the automatic right to appeal
• guaranteeing that every debtor will receive a face-to-face visit from HMRC agents before their debts are considered for recovery through DRD, this meeting will provide a further opportunity for us to:
  • personally identify the taxpayer and confirm it is their debt
  • explain to debtors what they owe, why they are being pursued for payment, and discuss payment of the debt
  • discuss options to resolve the debt, including offering a Time to Pay arrangement to the debtor, where appropriate
  • identify debtors who are in a vulnerable position and offer them the support from a specialist team to help them settle their debts
• only debtors who have received this face-to-face visit, have not been identified as vulnerable, have sufficient money in the bank and have still refused to settle their debts will be considered for debt recovery through DRD
• only considering the use of DRD on those with tax and tax credits debts of more than £1,000
• always leaving a minimum of £5,000 in the debtor’s accounts, so that we do not put a hold on money needed to pay wages, mortgages or essential business or household expenses

The government has also strengthened independent oversight of DRD and recognised the need for debtors to have clear procedures in place if they want to appeal their case. This includes:

• providing a 30-day window (once debt recovery has been initiated) for debtors to lodge an objection to us - money will be held in the account, but no funds will be transferred to us until this period has passed and a decision will be made on objections within 30 days
• introducing an option for debtors to appeal against our decision to a county court on specified grounds, including hardship and third party rights
• strengthening our governance procedures for DRD, including oversight by the commissioners of HMRC
• committing to enhanced transparency on this power and publishing statistics on the number of times this power is used and appeals that are raised
• reviewing DRD fully after the policy has been operational for two years, and laying this report before parliament

We will have a dedicated telephone line for appeals and for people to make other arrangements to pay their debts.

5. Helping those in genuine difficulty

We know some people experience genuine financial difficulty paying their tax or clearing a debt. This often happens when their life is affected by a major personal event, their business develops a problem, or they have received a tax credit overpayment which must be repaid.

We routinely take a sympathetic approach to those who need additional support.

When people realise they are not going to be able to pay on time, or if they require additional assistance with their taxes, we encourage our customers to get in touch as soon as possible.

HMRC has a strong track record in this area, with:

• just under 750,000 Time to Pay arrangements in place (worth £2.3 billion, as at May 2015) which allow individuals and businesses to pay off what they owe in manageable instalments - nearly half of these arrangements involved customers with tax credits debts.
• our ‘Needs Enhanced Support’ service providing additional telephone support for PAYE and Self Assessment customers with advisers who have the time, skills, knowledge and empathy to handle customers’ enquiries at a pace that suits them

To make sure vulnerable customers are fully supported during the implementation and use of DRD, we have:

• established a specialist unit to support debtors that require extra support: if a debtor meets the strict criteria for DRD but, following the face-to-face visit, we think they might be vulnerable or need extra support, we will not use DRD and will offer help through the specialist team
• made a commitment to work with voluntary organisations and professional bodies on its communications to debtors who are affected by DRD, to ensure they are well tailored and provide helpful advice on how to seek further assistance
• decided to apply DRD to a smaller number of cases during the first year of its operation in 2015 to 2016, to start the process on a small, targeted basis and gain experience and feedback

6. To find out more

Have a look at the consultation or information about Time to Pay arrangements.

The House of Commons library also published a research briefing on Direct Recovery of Debts in December 2014.