HMRC have announced they will restart the Direct Recovery of Debts (DRD) scheme, which gives HMRC the power to recover tax debts under certain circumstances.
What is the direct recovery of debts?
The Direct Recovery of Debts is not new, but has been on pause since Covid. The policy allows HMRC to recover tax debts from individuals or businesses who have failed to pay their tax liabilities on time, but crucially also where they have failed to engage with HMRC regarding the tax debt.
Using the DRD, HMRC can collect money by requiring that banks or building societies pay HMRC directly from a taxpayer’s bank account. This includes ISAs.
The tax debt must be £1,000 or more, so if you owe HMRC less than £1,000 you should never be at risk of HMRC accessing your savings in this way.
Can HMRC use the DRD to take my money?
There are strict safeguards in place to ensure HMRC cannot simply collect money from your bank account for just any reason. An ordinary taxpayer who pays on time, or who arranges payment plans, will not have their cash taken from their bank account.
HMRC cannot collect tax if the tax itself is under dispute. For example, if HMRC have raised an assessment for tax and you do not agree with the figures, your rights to appeal are not affected. HMRC cannot collect any tax due during the period of appeal.
Importantly, in order for HMRC to collect tax debts through this power, the taxpayer will receive a face-to-face visit from HMRC before the DRD is even considered. The idea is that this meeting will give HMRC the opportunity to explain the options available to the taxpayer and attempt to seek a resolution before resorting to the DRD to collect money.
What if I don’t have the money in my bank account to pay the tax liability?
HMRC should not ever use the DRD where there is insufficient money in the bank. Equally, HMRC should always leave a minimum of £5,000 in a taxpayer’s bank account, to ensure that everyone is still able to pay for essential business or household costs.
Instead the HMRC officer may discuss options available to you such as a Time to Pay payment plan, which will factor in future earnings and personal circumstances in order to try and reach an agreement with you.
What do I need to do?
If you have a tax debt with HMRC and cannot pay it, the best thing to do is be open and try to arrange a Time to Pay plan. There may be other options available to you depending on your circumstances.
If you disagree with HMRC’s attempts to make any debt collections under the DRD, you have a 30-day window to lodge an objection to HMRC. Following an HMRC decision, you can appeal against that decision to a county court for example if you are suffering from hardship.
If you need support in concluding a tax appeal or settling a tax debt with HMRC, contact the Menzies Tax Disputes and Disclosures team for a confidential consultation without delay.
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