When I first heard of HM Revenue and Custom’s (HMRC) plan to start taking money that they are owed straight from people’s bank accounts I was mortified. It sounded like an absolutely insane scheme to be brought in.
However, as we all know, it is very easy to form a strong opinion before we know all of the facts. Therefore I decided I would read up more on the DRD scheme and find out exactly what was happening before I condemned it, which I know would be the first instinct of anyone who hears that the government could be dipping their hands into your bank account. Hopefully I can give an unbiased opinion to alleviate some of the concerns regarding the DRD scheme.
Taking Money from my Bank Account is Invasive
One issue about the DRD scheme is that it seems very invasive for HMRC to take money straight from your bank account. The fact is HMRC can already take money out of your bank account, they just need to get a court order to do so. The problem with this is that getting a court order makes the issue public knowledge, (through newspapers etc); allowing potential customers and suppliers to know that you owe HMRC money and they are taking legal action to pursue it.
The alternative is HMRC turning up at your house or office and helping themselves to your assets or personal items to cover the debt which they do not need a court order to do.
Do you think quietly taking the outstanding tax from your bank account is more invasive than it being made public by a court order or having HMRC come into your home or workplace?
What if Taking the Money puts me into Financial Ruin?
Another concern is that HMRC will empty the contents of your bank account, crippling you financially and possibly causing bankruptcy. Upon reading the official article I can see that HMRC will only use DRD if you owe more than £1,000 in tax and will make sure to leave at least £5,000 in your bank account. This means if you owe £2,000 tax and have £6,000 in your bank, they should only take £1,000 and the £5,000 left over should ensure you don’t suffer financial difficulty. This is common sense on HMRC’s part as ruining people who owe you money is not good business sense.
It Feels Wrong that HMRC can Suddenly take my Money
Even if you are now relaxed regarding the above points, it is still a concern if money can be taken out of your account without a moment’s notice. The fact is, they wont. It is HMRC policy to contact you at least four times to ask you to pay the outstanding amount. This makes the DRD scheme a “last resort” method of collecting outstanding debts, just like sending bailiffs to confiscate your belongings to be auctioned off (which are usually sold for well under their value). So if HMRC use the DRD scheme on you, then chances are you’ve been given time to arrange to pay the outstanding debt.
It still Doesn’t feel right that HMRC Could take my Money
The main point to remember is that the DRD scheme is a method of recovering outstanding debts from people who are refusing to pay their taxes. So if you pay your taxes on time then none of the above is of any relevance to you and you probably wont even know DRD is in place. The same goes for those in financial difficulty who want to pay, HMRC provide a Time to Pay service to help make paying easier.
The only cases DRD could present a problem is if HMRC mistakenly chase you for tax that you have already paid. But with the several letters as mentioned above, you or your accountant should be able to set HMRC straight before any action is taken. Just be sure to photocopy any cheques you send to HMRC and print any online receipts or acknowledgements of payment. You can also find the amount being paid on your bank statement. With proof, HMRC will likely correct their records and stop chasing the amount.
The other situation is that you have a low amount in your current account but sufficient funds in an ISA or savings, which HMRC can take money from. This shouldn’t be a problem, if you get in touch using the above link and explain your situation.
Should the worst happen and HMRC takes money from your account in error, they mention that they can easily reverse the process and return your money, even preserving your ISA allowance if it comes to that.
I know that despite the above explanations the DRD scheme still seems like HMRC are overstepping boundaries, however this method for collecting overdue tax is already in place in several developed countries.
At first glance it is a scary prospect, but after reading through, the only people who should be worried are those who avoid paying tax without good reason. Those who pay on time, or are in financial difficulty are not likely to be the targets for the DRD scheme and can rest easy knowing that their money is safe. HMRC have even been asking for outside opinions and concerns to ensure they bring up sufficient safeguards to avoid any problems.
If you would like more in depth information you can read the official Direct Recovery of Debts document to help form your own opinion. An updated document was created that includes the response and changes made after concerns about the safeguards in place.
I hope that you find this blog useful and if you have any questions or would like to get in touch, than please do not hesitate to contact us.