Taxman endowed with new powers
1 Sep 09
Measures which allow the taxman to deduct up to £2,000 a year from taxpayers’ salaries could cause serious financial hardship
by Aileen Scott
The average UK taxpayer has £5,917 in income tax and national insurance deducted from their salary every year. Allowing HMRC to deduct a further £2,000 annually could mean 34 per cent more tax is deducted from taxpayers’ salaries.
Currently, HMRC must obtain taxpayers’ consent or a court order before it can deduct money owed to it directly from taxpayers’ salaries via PAYE. The potential figure of £2,000 is a lot of money, and this could leave many taxpayers facing considerable financial hardship.
After mortgage payments, food and energy bills, many taxpayers have very little left over every month. What’s going to stop HMRC making deductions from taxpayers’ salaries that leaves them unable to pay utility bills or service other creditors?
Other creditors can’t just deduct money from peoples’ salaries on a whim – there are robust checks and safeguards. Those safeguards are not there for cosmetic reasons – they are there for very sound reasons. This law will put HMRC at the front of the queue when it comes to collecting debt, while other creditors will have to pursue debtors through the courts. The cynical reader may well feel that since the Enterprise Act denuded HMRC of preferred creditor status, this is a sleight of hand to put them back where they were.
The department is already in a privileged position in being able to have an army of unpaid tax collectors, employers, to deduct the debt at source and it should be content with that unique position.
HMRC is not always right in its assessment of how much tax it is owed. One only has to look at its administration of the tax credit system and the errors that led to millions of pounds in tax credits being paid incorrectly and which continue to be so paid. Indeed, you have to wonder whether rather than lessening HMRC’s obligations in this regard there ought in fact to be stronger safeguards before HMRC is granted unfettered access to taxpayers’ pay cheques.
Alternatively, why not leave well alone? Most taxpayers will, I am sure, when contacted by HMRC with a view to paying tax arrears either in a lump sum or spread via a code number, acquiesce to the request to spread the bill. It is a mark of today’s society – the monthly direct debit society. It was apparently government policy not to encourage the payment of tax bills by credit card, essentially so that interest was not incurred.
Admittedly the use of tax collection via a code adjustment would avoid credit card bills, but they nevertheless could incur bank charges and interest. Deducting the tax owed at source simply means less is paid into the bank by the individual. Instead of this power, why not promote the use of credit cards to pay tax bills under £2,000? It would then leave the individual free to choose how much they want to repay the credit card company and over their own time frame, not an arbitrary deduction over 12 months (or less) of a tax year. In addition, UK plc would then be paid up front instead of “on the drip”.
The Government clearly needs cash, but when one examines this new power in conjunction with the considerable widening of the department’s powers in the same Finance Act, the hard-pressed legitimate taxpayer will be put under even more pressure.
The new power forms part of the Finance Act 2009, which received assent in July of this year. Previously, as I have already said. HMRC was only able to deduct underpaid income tax and capital gains tax or overpaid tax credits via PAYE with the taxpayer’s consent, or once a court order had been obtained. Now, however, HMRC will be able to recover all taxes through PAYE without seeking the permission of the courts.
Experience shows that HMRC has found it possible to recover overpaid tax credits from taxpayers, but often with difficulty. This legislation will mean that if tax credits are overpaid in future, the authorities will be able to claw back the money concerned very easily, from the people who are least able to afford it.
Aileen Scott is a tax partner with Campbell Dallas