Loan Charge contractors alerted to taxman's DRD power

The 2019 Loan Charge (LC) is being linked to a little-used HMRC power that officials look primed to ramp up against taxpayers who it deems owe but won’t interact.

Introduced in 2015, the ‘Direct Recovery of Debts’ power lets HMRC take cash straight from people’s accounts without notice, so it ought to concern LC recipients, says UHY Hacker Young.

'Increasingly attractive'

With only a court order required before money can be removed from bank or ISA accounts, the power could be an “increasingly attractive option” for a taxman facing 25,000 non-settlors, the accountancy firm said.

“Hopefully HMRC doesn’t take such an aggressive approach to such a huge number of taxpayers,” said Mark Giddens, a partner at the firm, referring to HMRC estimating that half of the 50,000 LC recipients to have not registered for settlement ahead of the April charge.

“With the loan charge on the horizon…HMRC wont shy away from using the power if it deems fit, meaning taxpayers are at risk of having funds removed in an instant.”

'Added motivation'

Until now, DRD has been heavily underused. In fact, official stats show that at odds with HMRC’s fanfare when it was unveiled, it has been used just 15 times in the past two years.

On its introduction, the Revenue even claimed it would use the power around 11,000 times each year, to result in a yield of an extra £100m in revenue in 2016/17.

“This could be added motivation for HMRC to ramp up its use of the scheme in the near future,” cautioned Giddens.

“Those who do not pay the loan charge to HMRC could be at risk of having money removed directly from their bank accounts.”

'Appeals to HMRC'

The accountant added that DRD, under which the Revenue must generally leave over £5,000 in the account of a raided taxpayer, is similar to so-called ‘Attachment of Earnings’ orders.

Such orders were used by the Revenue to increase its tax take more than 400 times in the last year, by permitting officials to deduct cash straight form people’s actual pay packets.

But “the process of taking money straight from bank accounts appeals to HMRC as it requires little interaction or negotiation with the taxpayer,” UHY said. “HMRC only requires a court order to take cash directly from any UK bank account.”