The government body first announced the increase in 2013’s Budget, and has widely consulted on it since, claiming it would not be “inefficient and unfair” to use more expensive debt pursuit measures when collecting larger sums.
However, Frank Strachan, partner, tax, at law firm Edwin Coe, said the new figure, which rises this week from the current limit of £3000, will “leave some taxpayers in for a shock”.
“This is a staggering revision to the limit under which HMRC will be able to directly recover tax debts,” he added. “£3000 covered most unexpected underpayments of tax, but the new limit of £17,000 allows for a much wider scope of tax debts to be recovered directly.”
A spokesperson for HMRC said taxpayers “welcomed” the option to have tax debt collected by instalment, with the changes only being applied to those earning more than £90,000 annually, as it allows them to pay their debts over the tax year, rather than in one instalment.
They added that “this is a very long-standing feature of the payroll system, but the increase in the current threshold will allow more tax debts to be paid in this way.”
But Graham Webber, head of professional relations at Rebus Investment Group, said the low-key manner in which HMRC had introduced the changes, in contrast to its controversy generated by its well-publicised plans to extract money directly from debtors’ bank accounts, was “regrettable”.
“Potentially draconian”
“It would surely have been in the public interest to have made a more prominent announcement in accord with the department’s often expressed policy of transparency and fairness,” he said.
He added that introducing “potentially draconian” recovery rules in this manner was “not conducive” to building trust between taxpayers and HMRC.
James Quarmby, partner, private wealth and tax, at international law firm Stephenson Harwood, added that the change was indicative of the Revenue’s new “get tough” approach: “Tax avoidance, even of the lawful kind, is now seen as anti-social behaviour.”
However, Ray McCann, partner (non lawyer) at law firm Pinsent Masons, said those criticising the scheme have “missed the point” that it is voluntary.
“The change is really just in how HMRC deals with tax debts owed by taxpayers within the pay as you earn system,” he said. “It would be pretty unusual for a taxpayer to have a debt of £17,000, and they would need quite high income to make coding an underpayment of that amount possible.”
He added that the increase in the limit would be “favourable” to taxpayers as it will, in effect, initiate an interest free period while the underpayment is collected over a full year.
“HMRC has always had this power, but, until now, the limit was £3000,” he added. “As the limits are subject to regulation it does not have the same scrutiny as primary legislation, and is nowhere near as controversial.”
“Considerable concern”
HMRC’s plans to take money directly from the accounts of tax avoiders, which are yet to receive Royal Assent, have been the subject of much controversy since they were first announced earlier this year.
In May, the commons treasury committee expressed “considerable concern” at the proposals, adding that implementing them without a consultation would be “wholly unacceptable”.
They have also been labelled “wholly draconian” by the Association of Chartered Certified Accountants.
However, the Treasury has defended the measures, pointing to safeguards ensuring that HMRC will only be able to remove the money when four requests for the tax have been ignored, when the money due is more than £1,000, and when there will still be £5,000 in the account afterwards.
