John Healey has given HMRC new powers to raid couples’ joint bank accounts to claim unpaid taxes.
Tax authorities will be able to take money directly from a joint bank account to pay for one partner’s tax debts, with no guarantee that a minimum amount will be left in the account.
One tax expert voiced concern that the power could be prone to misuse and error if the “taxman is going to go right into your bank account and take what it thinks it owes”.
In his Budget speech on Wednesday, the Chancellor said he was giving HMRC “stronger powers to collect overdue tax from those who can clearly afford to pay, but ignore repeated contact”.
Banks will be told to make regular deductions
The Treasury’s Budget ‘red book” says that from July 2029 HMRC will have a new power to “recover lower value tax debts through regular instalments directly from the bank accounts of individuals and companies who can afford to pay but repeatedly fail to do so”.
The measure is expected to bring an extra £320m into Treasury coffers in 2031-32.
HMRC consulted on its proposals for the new power earlier this year, with the Government publishing its response on Wednesday along with the Budget.
Under the plans, HMRC would be able to instruct banks to make regular deductions from current accounts to recover tax debts. The maximum debt pursued would be £5,000 for individuals and £10,000 for companies.
Crucially, joint accounts will be in scope, although the Government said it “would only consider joint accounts if there was no viable sole account”.
“Where HMRC holds the necessary information” it “will notify the non-debtor prior to any deduction and provide an opportunity to object”, the Government said.
‘Enough protection’ Government claims
The response to the consultation does not set out a minimum debt level which will be pursued, although the Government said it would “not use the policy for very small debts where action would be disproportionate or where the cost of collection would exceed the value of the debt”.
There is also not currently a plan to leave a minimum amount in someone’s account.
The Government said it did not “think that a minimum account balance is a necessary safeguard” because other measures “would provide enough protection for customers”, such as giving people a right to appeal and carrying out a “tailored affordability assessment” before taking the money.
However, it said it would “continue to consider a minimum account balance as part of the overall set of safeguards”.
This is not the first time HMRC has taken money directly from people’s accounts, with the HMRC operating a similar scheme called Direct Recovery of Debts, which was temporarily paused during the pandemic.
However, that scheme always leaves a minimum of £5,000 in an individual’s account, and people are guaranteed face-to-face visits from HMRC agents before the money is taken – a protection which is not mentioned in the new initiative.
‘They’re going right to the source’
Nimesh Shah, the chief executive of tax advisory firm Blick Rothenberg, told The i Paper that the new scheme felt like a “step change” in how HMRC pursues tax.
“There’s clearly a direction in the government and HMRC that they want to try and tackle the amount of unpaid tax, and they’re not necessarily going to do that by having more debt collectors, which are expensive to administer,” he said. “They’re going right to the source.”
Shah voiced concern about the timing of the scheme during a cost-of-living crisis. “You’re jumping right to an extreme solution here,” he said.
“We’re now saying the taxman is going to go right into your bank account and take what it thinks it owes.
“That doesn’t feel very sensible to me right now and in the wider spirit of what [the Government is] trying to do to support taxpayers.”
He went on: “I do worry about how these things are used. If they’re used in the right way, it completely makes sense. But they’re often not, and it’s just another tool that, again, I fear that will be used in the worst possible way.”
The new scheme will focus on tax debts and child benefit debt, with Tax Credits debts excluded.
For now deductions will only be taken from current accounts, although the Government said that if “evidence emerges of deliberate behaviours in order to avoid deductions”, such as people moving money to savings accounts, it would “consider whether additional account types should be brought into scope”.
People will be given a 28-day notice period before deductions begin, and HMRC said it expected fewer than 250,000 deduction plans to be launched each year.
The Government has said it will now work up a Code of Practice for the policy with an aim to have draft legislation next summer.
Autumn Murphy, technical officer for the Association of Taxation Technicians, said: “Appropriate safeguards will be essential to ensuring that the new power operates fairly and does not cause or exacerbate financial hardship.
“It will therefore be essential that the new Code of Practice provides robust safeguards and clear protections for taxpayers.”
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