ICAEW calls for safeguards on proposed tax debt recoveries

Strong protections must be in place if the government moves ahead with proposals to automatically deduct smaller tax debts directly from bank accounts belonging to persistently unresponsive taxpayers, the Institute of Chartered Accountants in England and Wales (ICAEW) said.

The proposals would expand HMRC’s enforcement powers, allowing it to collect smaller outstanding tax liabilities from some individuals and businesses that have not responded to repeated contact attempts.

HMRC estimates that around one-in-ten taxpayers do not settle tax liabilities on time. It said $2.6bn (£2bn) in lower-value debts remain unpaid after several recovery attempts.

The tax authority’s analysis indicates that around 4.8 million individuals and businesses have tax debts of £5,000 or less for individuals and £10,000 or less for businesses.

These account for approximately 11.5 million debts with a combined value of around £4bn.

In its response to the consultation, which closed last week, the ICAEW said it broadly supported the proposal as a means of reducing the tax gap.

However, it raised concerns about HMRC’s ability to administer the process effectively.

The ICAEW said that any monthly instalment sought by HMRC should be affordable. The institute added that the process should account for taxpayers’ support requirements and vulnerabilities.

However, the ICAEW added that HMRC does not currently hold enough information to assess a taxpayer’s ability to pay accurately or identify their level of vulnerability.

It also called for sufficient statutory mechanisms for taxpayers to object to deductions. A proper guidance would also ensure taxpayers understand their rights and obligations, it said.

Additionally, the ICAEW opposed the proposed 14-day notice period before a deduction is made, arguing that taxpayers would not have enough time to respond.

It recommended a minimum 30-day period for taxpayers to respond to a pre-deduction notice.

The Institute of Chartered Accountants of Scotland recently raised similar concerns about proposed tax debt recoveries by HMRC.