HMRC New Powers

HMRC lost their preferential status in insolvency proceedings in 2003.  Between then and now they had to sit in line with all other unsecured creditors.  The removal of their preferential status has undoubtedly led to other unsecured creditors receiving a better return in insolvency proceedings.

HMRC now however have new powers that allow them to effect enforcement by deduction directly from bank accounts have the potential to render a business instantly insolvent. To my mind this also returns to them their preferential status.

The provisions are targeted at those who can but refuse to pay. Yet some of those who cannot pay are likely to get caught by the treatment aimed at wayward taxpayers who ‘won’t pay.

Professional advisors will need to get up to speed and alert their clients to the new rules. In the event that HMRC tries to take control of a business’ funds, leaving them with just £5,000 would prove insufficient for most businesses, leading to an inability to pay debts and thus instant insolvency.  Imagine if this was to happen just before the salaries or other business-critical payments are due to be paid.  And what if it turns out that the tax was not due?

HMRC’s new powers

Finance Bill clause 47 sets out how the new power will work. The key points are:

  • Where amounts are due to HMRC, it can recover the sum by deductions directly from accounts held by deposit takers, such as banks. These deductions are subject to conditions A to C:


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


the sum is ‘established debt’ or due und an accelerated payment notice. APNs are payable once HMRC has considered any representations. Even if HMRC’s considered decision is manifestly wrong, there is no appeal right;


HMRC must be satisfied that the debtor is aware that the sum is due and payable.  However, the legislation, does not say how this should be done;

  • HMRC issue an Information Notice to a deposit-taker, requiring it to provide information within 10 working days about the debtor’s account(s) including those held jointly with another entity. Banks of all sizes will therefore need systems in place to cope with such a strict obligation within the 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 “safeguarded” (ie left available to the debtor) across its accounts;
  • There is a further raft of provisions, imposing duties on the deposit-takers, granting limited appeal rights to the business, through to penalties for non-compliant deposit-takers.

HMRC has made a number of changes in response to criticism and these include:

  • the introduction of limited appeal rights. This is welcome given that HMRC can make mistakes; and
  • the promise of face-to-face meetings. While a step forward, such meetings are merely given a mention in the explanatory notes, without any statutory safeguard. I am concerned for small businesses, perhaps with an unexpected tax underpayment, where letters have not been opened out of fear or because they have gone astray. To those businesses a meeting is surely vital.

Consider whether your clients need to be made aware of these new powers.