HMRC's scary new powers: can they really raid your bank account?

“The government will modernise and strengthen HMRC’s debt collection powers to recover financial assets from the bank accounts of debtors who owe over £1,000 of tax or tax credit debts, have the financial means to pay, and have been contacted multiple times by HMRC to pay. A minimum of £5,000 will be left across debtors’ accounts. This brings the UK in line with many other tax authorities which already have the power to recover debts directly from an individual’s account, such as France and the US.”

– Budget 2014/15 Section 1, Paragraph 208

This was in the Government’s latest budget tucked away at the end of section 1. It was picked up by a few publications, but was mostly overshadowed by the bigger announcements of the day. Is it what it sounds like? Can HMRC now take money directly from your bank account if they so wish?

The answer, worryingly, is yes. However HMRC must satisfy certain conditions before they can go dipping into your savings.

How does it work?

If you owe HMRC tax, like always, they will try to recover it. This is usually in the form of letters outlining how much is owed, when you must pay, and the penalties you’ll receive if you fail to settle your debt.

If after being contacted four times you don’t stump up the cash HMRC thinks you owe then they can potentially use their new bank account draining powers.

The restrictions are that you must owe at least £1,000 in tax or tax credits. Also, they must leave £5,000 across the debtor’s accounts. If that criteria is satisfied, HMRC will simply take the money themselves (previously such action needed a magistrate or judge to okay it).

In that situation the debtor then has 14 days to get in contact and set up a repayment plan in order to recover their funds. If they fail to do so, HMRC will keep all the money and consider your debt settled.

With great power comes great responsibility

There are major concerns about this new extension of HMRC’s power. The Government has suggested that it’s similar in practice to child maintenance payments, but in that case the Department of Work and Pensions works as an intermediary between two parties. In this scenario HMRC are acting solely in their own interest.

This wasn’t the only overzealous tax collecting power announced in the budget, either. HMRC can now take money from people simply if they think they may be using illegal tax avoidance methods.

This means they keep the cash until legal proceedings are over, paying it back with interest if they lose. These rules will apply retrospectively to the existing 65,000 outstanding tax avoidance cases. Again, no magistrate or judge is required, meaning HMRC has hugely increased its tax collection powers with no new independent safeguards or checks.

One of the biggest worries is how HMRC will handle these new tools; they don’t exactly have a great record when it comes to accuracy. Whether it’s losing physical records or allocating millions of people with the wrong tax codes, HMRC has shown it makes mistakes, and does so often.

For example, it is thought one in three people have the wrong tax code and don’t even know. According to HMRC, 3.5 million people paid too much tax in 2012-13.

As you might expect, strong-arm tactics combined with a penchant for inaccuracy means many businesses and tax bodies are concerned about HMRC’s new powers. Particularly worrisome is if HMRC suspects you of doing something illegal – they’re going to be able to take the money they think they’ll win from you without any outside checks (and they’ve already had several embarrassing cockups in this area).

Ronnie Ludwig, a partner at Saffrey Champness, is strongly against the idea. He said:

“I am uneasy with the underlying principle. There is a marked lack of external oversight in the proposals. HMRC is effectively judge and jury, however diligently they go about it.”

Can HMRC take my money?

Let’s find out!

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