HM Revenue & Customs: The taxman cometh

Proposals to raid bank accounts for tax arrears and promises to crack down on offshore income herald a more aggressive attitude at the Inland Revenue. By David Prosser
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HM Revenue & Customs is apparently not a subscriber to Benjamin Franklin's much-quoted dictum on the inevitability of taxes. It is so concerned that a small but determined minority of taxpayers is persistently failing to pay taxes that it wants new powers to raid miscreants' bank accounts, without first having to seek a court order for debt recovery.

The plans emerged yesterday in a HMRC consultation paper and would need Parliamentary approval to take effect. But taxpayers' groups and MPs alike were outraged by the proposal that HMRC would be able to freeze an amount of money in a taxpayer's account before seizing it permanently.

In particular, there is widespread concern about HMRC's ability to get tax calculations correct (see story below), which could in theory lead to a situation where money is taken from taxpayers' accounts even though it is not actually owed.

The Conservative MP Richard Bacon said: "Given that over a million tax records contain errors, it is far from certain that HMRC should be allowed to interfere with the bank accounts of potentially innocent taxpayers - it needs to iron out these errors first."

But a spokesman for the Revenue insisted both that the powers were needed and that they would be used responsibly. "We're talking about tax cheats who have a chronic history of default even though they have the resources to pay what they owe," he said. "If these powers are introduced - and it's a big if - we would use them in a very carefully proscribed manner and with many safeguards built in."

HMRC argues that several countries have already introduced similar powers, including France, Australia and Canada, and that it is under pressure to cut the cost of collecting unpaid tax. "The amount we spend on collecting from the tiny proportion of taxpayers who don't pay what they owe even though they can afford to is disproportionate," the spokesman said.

Even so, some accountants believe the move represents a new stage in a get-tough campaign by Revenue officials. "There is no doubt that HMRC is under huge pressure from the Treasury to collect more tax," said Martin Donn, a partner at Blick Rothenberg. "In our dealings with the Revenue, we find it harder and harder to get information out of them, and the approach to us and our clients is more and more aggressive."

Accountants point out that the latest crackdown comes at the same time as the agency's officials have begun sifting through the affairs of around 340,000 people who it believes have failed to declare income earned on offshore savings accounts.

Earlier this year, it announced an amnesty for those with undeclared accounts. Taxpayers who volunteered information about their savings before the end of 22 June were promised they would only have to pay back taxes on undeclared income, with none of the penalties usually charged on unpaid accounts.

However, while 60,000 savers made themselves known to the Revenue, the agency believes as many as 400,000 UK residents hold undeclared offshore accounts. While a minority of these savers are non-UK domiciled for tax purposes, the Revenue has promised a vigorous pursuit of those with unpaid bills.

The agency has also warned that it will calculate penalty charges on the unpaid tax in the context of the fact it had previously offered the amnesty.

As well as taking more proactive action against perceived tax dodgers, the Revenue is also seeking the right to beef up the way it investigates cases. Officials could soon have unprecedented powers to investigate breaches of tax laws such as these. Ministers are updating their powers to bring them into line with the enforcement powers held by Customs staff.

John Whiting, a PricewaterhouseCoopers partner who sits on the board of the Chartered Institute of Taxation (CIOT), said: "There certainly has been a levelling up of powers since the merger of the Inland Revenue and Customs & Excise in 2005. Customs officials have traditionally had much stronger powers, because they were charged with investigating criminal activities, but there is a feeling that this is a pervasive issue for the Revenue."

In particular, tax officers may soon have powers to make arrests, execute search warrants and even take fingerprints.

The CIOT is concerned that HMRC appears to be cracking down on taxpayers without necessarily putting its own house in order first. There is certainly no suggestion, the CIOT says, of enabling taxpayers who believe they have been overcharged tax to withdraw funds from HMRC accounts - with or without a court order.

Million pay wrong amount of tax

Hundreds of thousands of taxpayers are owed refunds totalling £157m because of errors made by HM Revenue & Customs, a National Audit Office report warned today.

The NAO said more than 1 million people paid the wrong amount of tax for the 2006-07 financial year because of HMRC errors, with under-payments amounting to £125m and over-payments totalling £157m. But the agency warned that thousands of taxpayers had also faced unnecessary stress trying to put the errors right. It also complained that more vulnerable groups had been disproportionately affected by the errors. The mistakes have occurred because Revenue tax centres are still processing large numbers of self-assessment tax returns manually, and because many taxpayers' affairs have become more complicated.