HMRC bank account raid powers spark concern over burden of proof
HMRC’s upcoming new powers, which allow it to recover tax debts directly from bank accounts, raises questions about how the taxman calculates debt. The new powers, unveiled by Chancellor John Healey in the Budget, effective from July 2029, will allow HMRC to automatically deduct debts from holders who fail to engage with the taxman despite being able [...]
The future powers of HMRC, announced in the budget, may increase concerns over how the tax authority determines debt amounts and the steps taken to recover them. The new rules, set to begin in July 2029, will enable HMRC to automatically deduct debts from bank accounts of taxpayers who owe less than £1,000, provided there is still at least £5,000 remaining in the account.
The scope of the new rules applies to tax debts up to £5,000 for individuals and up to £10,000 for companies. Labour aims to close the tax gap, which currently stands at £59.2 billion for the 2024/25 tax year. HMRC anticipates that the new powers will generate £50 million in the first year, £255 million in 2030/31, and £320 million in 2031/32.
James Kipping, head of private client at MHA, expressed concern over how HMRC calculates the debt amount and determines whether a taxpayer is refusing to engage or simply unable to pay. Kipping also questioned the data HMRC uses to assess income, affordability, and the speed at which taxpayers can halt the process and regain control of their funds.
The new proposal creates a system akin to an HMRC-imposed payment plan, where the department determines affordability and then extracts recurring payments from taxpayers' accounts.
Ministers have previously expressed worry over the high threshold, which encourages some taxpayers to ignore HMRC's demands, knowing that the taxman is unlikely to pursue them. The success of this measure will depend on robust safeguards and proportionate use, especially when dealing with undisputed debts and when other recovery options have been exhausted.
Rachel Nutt, a tax partner at MHA, highlighted that most compliant taxpayers are unlikely to be affected, but the implementation must be handled carefully to avoid confusion and potential disputes with HMRC.
A spokesperson from HMRC stated that the new powers will ensure fairness for all taxpayers and be subject to strict safeguards, including affordability checks. HMRC will only consider these powers after repeated attempts to contact customers who have the means to pay but refuse to engage. Taxpayers can reach out to HMRC at any time to discuss alternative payment methods.
The tax authority is also intensifying its focus on LLPs and their members' tax status, following a Supreme Court ruling in July that clarified this area of law.
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