Ever since the publication of Thomas Hobbes' Leviathan and Adam Smith's Cannons of Taxation it has been generally accepted that tax should be collected by the state to fund the protection of the people in their daily lives.
It is therefore generally accepted that one arm of the state – Her Majesty's Revenue & Customs (HMRC) exercise powers conferred on it to assess and collect taxes from people and businesses. HMRC is no ordinary creditor, it is the statutory creditor on behalf of Her Majesty's Exchequer and its powers befit this unique status.
It has power to impose interest and/or penalties for late/non payment of tax, as well as late/non-submission of tax returns. It has the power to inquire into people's income and sources of income (going back 20 years in some cases) and can force a disclosure of such. It has the right to ask third parties for information about a person's tax affairs and when its patience is really tried it has the right to enter commercial buildings and seize documents.
However, a new power for HMRC has been announced which many politicians and legal/accountancy professionals are decrying as a step too far. On May 6 2014, the government released a consultation called Direct Recovery of Debts which proposed to give to HMRC the power to take money out of people's bank accounts (including ISAs) to settle unpaid tax bills (the consultation closed at the end of July). The proposal is for outstanding taxes of £1,000 or more to be collected from an individual/business's bank account where HMRC deems it suitable – where sufficient funds exist to pay the outstanding tax whilst leaving the individual concerned with no less than £5,000. A route for appeal is available before and after money has been taken from the account.
There is support for this in several quarters – the Institute of Directors for one. They and others point out that the UK has a tax gap (ie the difference between tax due and tax paid) of £4billion and this needs to be closed. The Government points out that 90 per cent plus of taxpayers pay on time and have nothing to fear. Even then, those who do not pay on time will have been contacted by HMRC and given time and opportunity to pay. Other countries have successfully employed this method.
If HMRC could be trusted to live up to its promises of collecting the correct amounts from the correct people then the objections to this proposal could well be muted somewhat. However, the simple fact is HMRC cannot be trusted to do this. Its track record when it comes to taking the wrong tax off people is woeful – last year 5.5 million people had too much tax deducted through Pay As You Earn (PAYE) and there was a 30-day delay in telling people that the PAYE tax codes were wrong (despite HMRC spending £300 million on a new IT system).
More generally, there is a culture of tunnel-vision within HMRC's debt management department that if a debt is due then it must be collected – irrespective of whether it is correct. Money could be taken from people's accounts and the individual has to go through the stress and expense of appealing the matter through the tax tribunals and courts.
Some people question if this is thin end of the wedge – if HMRC has access to people's accounts then why not other government agencies? Aside from the inability of HMRC to execute this proposed power correctly it has been pointed out that the UK still has one of the most efficient tax collection systems in the world and voluntary compliance ranks amongst the highest.
Without safeguards, this proposal by HMRC is certainly a step too far. With its track record it would simply be too dangerous to give HMRC this much power. An independent overseer would allay many fears; but even then, the idea just doesn't feel comfortable.
Chris Thorpe is a tax director of Haines Watts, Exeter