A new TaxPayers' Alliance report, written by leading barrister Francis Hoar, demonstrates significant flaws in Direct Recovery of Debts legislation
Principle of the right to justice through the courts, laid down in Magna Carta 800 years ago, at risk due to badly designed legislation
Direct Recovery powers would see HMRC given almost unprecedented power over individuals, and oversights in legislation could lead to dramatic negative impacts on companies and individuals. The power would fly in the face of principles set down in Magna Carta
This week's Budget suggests that changes will be made to legislation in Summer Finance Bill, but it remains unclear whether much-needed protections will be included
New powers allowing HMRC to seize funds directly from bank accounts - so-called 'Direct Recovery of Debts' powers - are flawed in both practice and principle, according to a new report for the TaxPayers' Alliance by Francis Hoar. Hoar is the barrister who most recently come to prominence successfully presenting the case against former Tower Hamlets mayor Lutfur Rahman in the High Court.
The basic mechanism of the legislation allows HMRC to place "hold notices" - essentially, to freeze all but £5,000 of an individual's assets - if it "appears" that there is a debt to the Revenue. If there is no objection to the hold notice within the requisite period or an appeal has been dismissed, HMRC may then issue a "deduction notice" and oblige the bank to transfer the funds it requires.
Key findings of the report include:
- Many of the "protections" in place for taxpayers are not as watertight as they seem. In particular, HMRC promise face-to-face meetings with agents. However, this does not appear in the original draft legislation, and is merely included in the non-binding explanatory note to the draft clauses. As of release, there remains no guarantee that this protection will be included in any amended legislation (see Notes to Editors)
- It is possible to object to the issuing of a hold notice to HMRC and then to appeal to a court if HMRC overrule that objection. However, while an objection must be made within 30 days of the hold notice being served on the taxpayer, there is no minimum period within which HMRC must consider and determine the objection - all the while, the "hold notice" would still be in place unless collateral, in the form of property or other material assets, is provided
- The legislation allows for 'Accelerated Payment Notices' (APN) which, as the current legislation is written, could again give rise to a situation in which a taxpayer wrongly issued with an APN could be subject to their account being frozen and money being seized without recourse to appeal
- 'Hold notices,' which freeze all assets above £5,000, could leave individual taxpayers unable to meet their outgoings over a long period of time. It is hardly unknown for HMRC to make administrative errors, and if this occurs the lack of obligation on HMRC to answer appeals in a timely fashion could leave individuals struggling to pay the bills
- Companies are treated as individuals in British law, and as such an administrative error by HMRC leading to a hold notice could put a firm in serious danger of insolvency through no fault of its own
In the Budget, the Government said:
"This government will introduce legislation to modernise and strengthen HMRC's power to recover tax and tax credit debts directly from debtors' bank and building society accounts, including funds held in cash ISAs. Having widely consulted, this measure will be subject to robust safeguards including a county court appeal process and a face-to-face visit to every debtor before they are considered for debt recovery through this measure."
It is important to note that these protections have already been discussed by the government, but are not included in the draft legislation as it stands.
Francis Hoar, the author of the report, said:
"The proposed legislation is flawed, and there are likely to be serious consequences as a result. However, the proposal itself is objectionable in principle. The greatest legacy of the Magna Carta is the principle that the executive is subject to the law as much as the people, and yet the Direct Recovery legislation places the Crown in a superior position to individuals and businesses in its rights to enforce debts. It denies access to the courts for the resolution of disputed tax liability before property is frozen, and delays a judicial remedy for an indeterminate period. Most dangerously of all, it treats individual property as the property of the state once the state has determined it so."
Jonathan Isaby, Chief Executive of the TaxPayers' Alliance, said:
"HMRC made 5.5 million errors last year, and giving the organisation powers over and above that set out in the principles of Magna Carta is hugely worrying. 800 years ago, the principle was set down that individuals would have recourse to the courts when challenged by the Crown or by what would become Parliament. Removing that protection is profoundly dangerous and we urge the government to reconsider this legislation as quickly as possible."
Small print in the Budget suggests the Government will push ahead with the legislation, but will consider further safeguards. Taxpayers will be deeply concerned that the huge flaws in the draft legislation are addressed."