Insolvency - HMRC’s New Deduction Powers


Alison Reid, Insolvency Partner explains how individuals and businesses who owe more than £1,000 to HM Revenue and Customs (HMRC) may have their funds raided for the money owed.

Chancellor George Osborne's Summer Budget confirmed plans to introduce new laws to "modernise and strengthen" HMRC's powers, meaning it will soon have the power to recover tax and tax credit debts directly from debtors' bank, savings and ISA accounts.

The rules will come into force in England, Northern Ireland and Wales under the Summer Finance Bill 2015, which is expected to take effect this autumn. HMRC estimates around 11,000 individuals and businesses a year will be affected by the move.

How will this new regime work?

  • If there are monies owed to HMRC, it can take steps to recover the monies by deducting funds directly from accounts held by deposit takers, such as banks. These deductions will be subject to three conditions: 

    1. the sum pursued must be at least £1,000;

    2. the sum is ‘established debt’ or due under an accelerated paymentnotice (APN). APNs are payable once HMRC has considered any representations. here is no right to appeal this decision; and

    3. HMRC must be satisfied that the debtor is aware that the sum is due and payable.

  • HMRC will issue an Information Notice to the deposit-taker, requiring it to provide information within 10 workings days about the debtor’s account(s) including those held jointly with another entity. Banks that operate in the appropriate jurisdictions will therefore need to put robust systems in place to deal with their new obligations within this tight timescale.

  • HMRC can then issue a ‘hold notice’ to the deposit taker to put a hold on the account(s), providing at least  £5,000 is set aside for the debtor across its accounts.

The Bill contains further provisions imposing duties on the deposit-takers, granting limited appeal rights to debtors and imposing penalties for non-compliant deposit-takers. Financial institutions therefore need to be aware of their potential liabilities, and debtors also need to be aware of their rights under the legislation. 

HMRC Changes

Not surprisingly, HMRC has been subject to criticism for these new measures. It therefore has proposed a number of changes to take account of the criticism. These changes will include:-

  • the introduction of limited appeal rights;

  • the promise of face-to-face meetings with debtors;

  • a 30 day “freezing” period -  financial institutions  will freeze funds to be taken by HMRC for a 30 day period giving the debtor a chance to object to the funds being taken from their account(s);

  • a right appeal decision of HMRC at the County Court in the relevant jurisdiction .

It should be remembered that these new provisions are aimed at those debtors who refuse to pay HMRC monies owed, despite being in a position where they are able to make payments. However, that is not to say the HMRC will look at such issues on a case by case basis.

Get the right advice

Financial Institutions and business owners therefore need to be aware of this new legislation and HMRC powers.

The threat of insolvency is a business owner’s worst fear and it can only be avoided or dealt with properly with the right advice from accountants and lawyers. The new deductions powers could leave a business owner in a dire financial position forcing it into an immediate insolvency situation which may not have been of its own making.

If you require any further information as regards these new powers, please contact us.


Alison Reid