21st century tax debt collection
By Susan Cattell, Head of Tax Technical Policy
18 March 2022
Susan Cattell outlines the ICAS response to an HMRC call for evidence on modernising the collection of tax debt.
Modernising tax debt
HMRC published a call for evidence, Modernising Tax Debt Collection from Non-Paying Businesses. The changing nature of the economy, with the increased use of e-commerce, has given rise to new business practices. The UK Government is therefore looking at how HMRC could modernise its collection of tax debts to address businesses operating in less traditional ways, including those which conduct business in the UK without having a presence or physical assets here.
The call for evidence considered:
- HMRC’s existing powers, including Taking Control of Goods, and how far there is a problem in using these powers to deal with new business practices; and
- How businesses which deliberately choose not to pay tax debts could be encouraged to change their behaviour.
ICAS response
ICAS Members tend not to have much experience of advising businesses which have the ability to pay their tax debts to HMRC but choose not to do so, except in cases where they assist a previously non-compliant business to bring its affairs up to date. Our response to the call for evidence concentrated on some of its specific questions, relating to Direct Recovery of Debts, the role of agents and opportunities to encourage payment.
Digital wallets
One of the proposed options for modernisation is to extend the Direct Recovery of Debts regime (DRD) to digital wallets. DRD gives HMRC powers to recover tax debts from taxpayers’ bank or building-society accounts, subject to various safeguards. ICAS could not see any objection in principle to the extension of DRD – not least to prevent the non-compliant trying to use digital wallets to ensure that HMRC cannot use its DRD powers. However, it is important that taxpayers are confident that HMRC’s powers are used reasonably, in order to maintain trust in the tax system.
The 2019 review of DRD provided some reassurance that it is being used in appropriate cases and that the operational process and safeguards put in place are working. It also seems clear that the existence of the DRD powers encourages payments from those who can pay. In 2019-20 DRD was only used 11 times, which suggests that HMRC’s proportionate approach to using DRD continued after the end of the period covered by the review.
If DRD is extended to digital wallets, it is important that this reasonable approach to the use of DRD is maintained. Given that hearing about the existence of the DRD powers appears to encourage taxpayers who can pay to do so, more extensive publicity could be helpful. However, DRD gives HMRC significant powers, so it is also important that HMRC periodically provides evidence that it is being used properly.
Our response suggested that a further review of DRD should be undertaken to demonstrate that it continues to be used appropriately. If DRD is extended to digital wallets, this review could take place two years after that extension and could consider both the general operation of DRD and any specific issues which may have arisen with digital wallets.
The role of agents
The call for evidence asked what opportunities there are for agents to play a greater role in helping their clients engage with, and pay tax due, to HMRC. Our response noted that ICAS Members support tax compliance and compliant taxpayer behaviour but they are not responsible for tax payments on behalf of their clients.
We do not think it is realistic to expect agents to play a greater role in helping their clients to engage with, and pay tax due, to HMRC – it is generally not a part of their remit. There is a contractual relationship between an agent and the taxpayer; the taxpayer appoints the agent to handle their tax affairs. The appointment may be a one-off to deal with a particular transaction, or it may be ongoing and may cover some or all the client’s tax affairs.
The role of the agent is to act on behalf of the taxpayer in terms of submitting a tax return and agreeing the quantum of liability. Generally, the agent will inform/remind the taxpayer of the amount due and the payment dates. The agent is not responsible for making the client pay tax and would not have access to the client’s bank accounts. In many cases the agent would be unlikely to know that the client was deliberately not paying.
Agents can provide advice on cash flow (if that is the cause of any non-payment of tax) or might be able to assist with putting in place Time to Pay arrangements (if the client is in financial difficulties). If, unusually, an agent did know that the non-payment was deliberate, they should withdraw from the engagement.
Opportunities to encourage engagement and payment
ICAS suggested that HMRC could perhaps be more proactive in contacting taxpayers, particularly those without agents, to set up payment plans where deadlines have been missed. We understand from Members that there is still a fear of dealing with HMRC amongst many taxpayers; what may appear to be deliberate non-payment, may simply be a struggling taxpayer sticking their head in the sand. For individuals with earnings below a certain threshold, contact could perhaps be routed through a third party (such as MoneyHelper or debt-advice charities) then referred back to HMRC if the taxpayer is uncooperative.
Let us know your views
ICAS responds to many tax calls for evidence and consultations and produces tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by Members. We welcome Members’ input to inform our work – please email tax@icas.com to share your insights and feedback.