Direct Recovery of Debts by HMRC
Did you know?
The government is about to implement powers to give HM Revenue & Customs (HMRC) new powers to withdraw funds directly from bank accounts of Individuals and businesses, including limited liability entities that have established tax and tax credit debts due to them. It’s called “Direct Recovery of Debts”. (DRD)
- Debt must be greater than £1,000
- HMRC will always leave a minimum aggregate of £5,000 across the debtors’ accounts.
- It can be taken from credit balances at bank and building society accounts, including ISAs.
- It can be taken from joint accounts you share with someone who owes HMRC (on a pro-rated basis).
- Before direct recovery they will freeze the account (issue a hold notice) for funds up to the debt value. A 30 day appeal period against the freezing of funds by HMRC is envisaged before transfer to HMRC.
- Deposit-takers will be required to provide information to HMRC and hold and transfer sums from customers’ accounts to HMRC.
HMRC safeguards, they promise to…
Have made numerous attempts to get paid before they use this new power.
Guarantee a face-to-face visit to the debtor although this will be by an HMRC recovery agent.
Have their agent discuss payment and resolution options, including, if appropriate, a Time to Pay arrangement.
Identify debtors who are in a vulnerable position and offer them the support they need.
Impact on non-compliant individuals, partnerships and companies
If you refuse, or aren’t able, to pay what is owed to HMRC:
Payments to key suppliers and employees may be impossible when funds are frozen. This may force you or your business into formal insolvency because business goodwill has been destroyed.
If you have secured lending from your bank they may see this as indication that the company is a bad risk and enforce their security.
Any joint account holders will be notified of your financial issues.
Your bank will charge you an additional administration fee for doing HMRC’s bidding.
Your right of objection to HMRC, and ultimately the County Court, may be time-consuming and costly.
If HMRC are wrong about the debt the damage to you and your business may be irreversible.
What can you do?
HMRC say DRD will make the tax system fairer as debtors who have the money to pay but choose not to do so will have the money seized directly.
However, if preferring one particular creditor, HMRC, doesn’t sound fairer to you, you can make sure what is available to creditors is shared out fairly by using a formal insolvency process.
If as a director, you are owed substantial funds by your business, HMRC might still be able to promote its debt above yours even though they have equal ranking in law.
If you place it into liquidation before deduction is completed by payment to HMRC the insolvency process will defeat it. Commencement means the date on which a winding up resolution is passed, a winding up petition is presented or a bankruptcy order is made
You do need to act quickly if HMRC threaten or issue you with a hold notice in order to get a winding up resolution in place.
It is not clear if a Notice of intention to appoint an administrator or an interim order would intervene and stop the direct recovery by way of the moratorium, and unless the moratorium is specifically dealt with in the enabling legislation we suspect there will be no certainty until a case goes before the court. On first principles it seems likely that the moratorium will stop any new action from commencing but it may not avoid any action that has started. Further clarity is needed.
To place your business into formal insolvency and ensure that all creditors are treated on an equal basis from what’s available, please call the number below.
Please call John Paylor on 020 3096 0750 if you would like to discuss your circumstances and how the new HMRC powers may effect your business.