Tax inspectors will now have direct access to bank accounts to recover unpaid taxes as part of a renewed effort to reclaim billions lost to evasion and avoidance.
Under HMRC’s “direct recovery” powers, funds can be withdrawn from the accounts of individuals who have the means to pay their tax bills but refuse to do so. The tax authority will only take this step after making multiple attempts to contact the taxpayer by letter and phone.
Although HMRC was originally granted these powers in November 2015, their use was paused during the pandemic. The measure specifically targets persistent debtors who have repeatedly failed to respond to efforts to collect outstanding taxes.
This move follows the Chancellor’s recent announcement of a crackdown on tax avoidance, which the Treasury expects will raise an additional £1 billion in revenue.
The measures outlined in the Spring Statement build on the October Budget announcements, aiming to raise £6.5 billion annually by the end of the current Parliament through a clampdown on tax evasion.
‘Exploring automation’
Accompanying policy documents confirmed that HMRC will resume the use of “direct recovery” powers to collect tax debts from individuals and businesses who are financially able to pay but refuse to do so. The Government also stated it will “explore options to automate the process for collecting lower-value tax debts.”
HMRC estimates that tax evasion by businesses alone costs the Treasury £5.5 billion each year, though MPs recently warned the true figure may be significantly higher.
Originally introduced before the pandemic, the Direct Recovery of Debts measure was designed to recover tax debts over £1,000. Funds would only be seized if the debtor was left with a minimum of £5,000 in their accounts, and only after the appeals window had closed.
A 2019 review of the policy’s effectiveness estimated it brought in an additional £178 million in tax revenue.
‘A vital tool’
The government described the measure as a “crucial lever” in dealing with individuals and businesses that knowingly avoid paying tax despite having the means to settle their debts.
HMRC may soon be granted additional powers to request more personal information from banks about their customers, as the Treasury raises concerns that some savers are not paying the correct tax on their interest income.
This could include access to National Insurance numbers, enabling HMRC to more accurately match individuals with their savings accounts and ensure proper tax compliance.
Earlier this month, the Treasury also unveiled plans for a new US-style rewards scheme, encouraging the public to report suspected tax evasion by family members or former employers.
John O’Connell, chief executive of the TaxPayers’ Alliance, voiced concerns, saying: “Taxpayers will understandably be uneasy about the ever-expanding reach of the tax authorities, especially given the authoritarian tone of this proposed power. HMRC has become increasingly kafkaesque, adding to the frustration of those navigating our chaotic tax system.”
In response, an HMRC spokesperson said: “It’s right that we take steps to recover tax from the small minority who have the means to pay but choose not to. These measures will be backed by strong safeguards, and we remain committed to supporting customers who need help managing their payments.”
