Crackdown on overpaid tax credits

It’s feared that more people will be pushed into financial hardship after it was revealed that the Treasury may soon be able to withdraw overpaid tax credits directly from personal bank accounts.

The new power, known as direct recovery of debt (DRD), was announced in this year’s budget, and is set to be granted by Her Majesty’s Revenue and Customs (HMRC). Under DRD, HMRC will be able to:

  • collect debts from taxpayers’ bank accounts
  • collect debts of over £1,000 that may be made up of several smaller debts
  • monitor account balances, as well as retain taxpayers’ bank details, in order to make a collection

According to HMRC’s own figures, the total owed to the government in overpaid tax credits is more than £5.6 billion. Around 10% of the families involved have a household income of less than £20,000 a year, and of those being pursued over debts, 118,000 earn less than £5,000 a year.

Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales (ICAEW), said: “These new powers essentially mean that HMRC can avoid the need for a court order to collect debts from people’s bank accounts. With no independent judicial oversight, how can a claim to, in essence, raid somebody’s account be justified?”

Izza continued: “Experiences of our members shows that HMRC frequently makes mistakes in collecting debts, often chasing debts that have been already paid or are not actually due. According to the adjudicator’s report for 2013-14, 90% of complaints against HMRC were upheld wholly or in part. With this in mind it is unrealistic to expect HMRC to implement DRD without making mistakes.”