HMRC debt recovery powers to raid bank accounts ride roughshod over Magna Carta principles

Buried in the hefty tome presented to the House of Commons at the Budget last week were these 36 words: “Direct recovery of debts – This government will introduce legislation to modernise and strengthen HMRC’s powers to recover tax and tax credit debts directly from debtors’ bank and building society accounts, including funds held in cash ISAs.”

 

On the eight hundredth anniversary of Magna Carta, politicians have taken every opportunity to pay tribute to it. They claim to be worthy custodians of that Great Charter, which sowed the seed of the notion that nobody, not even the Crown, is above the law of the land. It advocated the principles of property law and due process on which not just our own but countless other legal systems have developed.

 

It is a sad irony, therefore, that in the year of that momentous anniversary the government has decided to introduce a thoroughly illiberal piece of legislation which flies in the face of long standing property rights, granting HMRC the right to remove money directly from the bank accounts of perceived debtors without involving the courts. The threat of the proposal is compounded by the fact that HMRC failed to get the tax bill of several million people right last year.

 

There are further serious concerns. The plan allows HMRC to issue a “hold notice” if “it appears” that there is a debt and HMRC is “satisfied” the taxpayer is aware of the debt. The hold notice freezes the bank account of the taxpayer, subject to a minimum £5,000 allowance left in the taxpayer’s control. While the taxpayer has 30 days to object to a hold notice, there is no time limit within which HMRC must respond to the objection. And the taxpayer cannot appeal to the court for a suspension or cancellation of the hold notice until HMRC has responded.

 

While £5,000 may be enough to live on for a while, the proposal makes no distinction for companies. Depending on the size of a company, a £5,000 allowance could leave it bankrupt within days, without the possibility of appeal until HMRC chooses to respond.

 

In HMRC’s consultation response to the proposed legislation, a great deal of importance was given to face-to-face meetings with the taxpayer before a hold notice is issued. However, no such obligation is actually written into the draft legislation. More widely, HMRC’s response relied on the promise that it would only pursue genuine tax avoiders who owed a real debt, and that it would act reasonably and competently in using the powers.

 

This misses the basic point of good legislation: that protection against government actions needs to deal with situations where the state and its agencies have acted unreasonably or incompetently. This is a fundamental tenet of rights of appeal and protections of citizens’ rights. Given the fact that HMRC regrettably has a history of error in working out people’s tax, the safeguards against HMRC errors need to be particularly robust and comprehensive, especially given the critical consequences which an erroneous bank account freeze could have.

 

Magna Carta espoused the Crown being subject to the same law as everybody else and timely access to justice. The draft legislation – as it stands – puts the Crown in a superior position in recovering debts over ordinary individuals and businesses, and denies taxpayers access to courts and judicial remedy for an indeterminate period while their accounts remain frozen.

 

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