The current Finance Bill contains the proposed legislation for HMRC’s new power to take tax that you owe direct from your bank account (Direct Recovery of Debt). It is not clear when it will come into effect as much is left to be flushed out by the Treasury by Regulations. It will probably come into effect towards the end of 2015. The Finance Bill Explanatory Notes say that “only debtors who have received a face-to-face visit, have not been identified as vulnerable, have sufficient money in their accounts and have still refused to settle their debts will be considered for debt recovery through DRD”. That of course is if the system works properly. HMRC’s track record for mistakes is not good. DRD will not be used to collect debts that total under £1,000 and HMRC must leave at least £5,000 across your bank accounts. Unfortunately that is not much help to a business, which could well be pushed into insolvency if HMRC wrongly target one and leave it with only £5,000.
The procedure is that HMRC tell the bank to freeze your accounts up to the amount of the tax owed (less the £5,000). They then tell you they have done so. You can make representations to HMRC to try to persuade them to change their mind. You can also appeal to the county court. However your bank account then remains frozen until the appeal has been heard, so that is not an attractive remedy. When any appeal has been heard and any representations resolved, HMRC tell your bank to pay over the money to them. Once this is done, the account will be unfrozen.
DRD depends on HMRC knowing where you bank. You may have told them this because you have put your bank details on your tax return to speed up a repayment or because you pay your tax by direct debit. If you have an interest-bearing account, your bank will have told them. HMRC can also take the money from your ISA as the provider will have notified them. Once they know you have an account at a particular bank, they can require the bank to tell them what other accounts you have there. However, they have no power to require the bank to tell them if it know that you have other accounts elsewhere.
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