The 2019 LC (Loan Charge) has begun to be associated with a sparingly used power that HMRC can prepare to use against taxpayers if it assesses them to owe without registering for settlements.
The power in discussion is the ‘Direct Recovery of Debts’ (DRD) which was introduced in 2015. According to the UHY Hacker Young—a leading accountancy firm—by using this power, HMRC can directly extract cash from the accounts of people without any notification. As a result, the recipients of the LC ought to be concerned.
The accountancy firm explained that the taxman will only need a court order to take out money from the ISA or bank accounts. As HMRC looks to address 25,000 non-settlers, this option can present itself as an “increasingly attractive option.” Earlier, HMRC estimated that from 50,000 of the Loan Charge recipients, half of them have still not registered to settle their cases as April nears.
Mark Giddens—a partner at the UHY Hacker Young—expressed hope that the taxman strays away from the use of such aggressive option for dealing with a large amount of cases. He stated that with the LC just around the corner, the taxman can think about taking advantage of the power when it finds it appropriate. Consequently, taxpayers may suddenly discover the elimination of their funds.
In the past, DRD was used very little. According to official figures, it was used only 15 times during the last two years. Interestingly, when it was introduced in 2015, the Revenue announced that they plan to use it 11,000 times in order to increase revenue by £100m for the 2016/2017 season.
Giddens fears that HMRC may use this situation to increase the use of the power in the future. He explained that individuals who did not pay the LC could have their funds extracted out from their accounts.
The firm also explained that the power enforces the Revenue to let at least £5,000 in the taxpayer’s account. This means that it bears similarity to the ‘Attachment of Earnings’ orders. In the last year, the Revenue made use of such orders in order to boost the tax returns by 400 times when officials were authorised to take out cash directly from the earnings of the people.
The UHY believes that the DRD option can appeal to the HMRC because it does not involve any negotiation or interaction with the taxpayers; all they need is a court order.