18 June 2009
Titles that covered this article include: The Independent on Sunday, 21 June 2009; The Daily Express, 21 June 2009.
New powers which will allow HM Revenue & Customs to deduct £2,000 a year from taxpayers’ salaries to recover tax debts could cause many taxpayers serious financial hardship and leave other creditors out of pocket.
According to our experts 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% 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.
Roy Maugham, Tax Partner in our London office, comments: “£2,000 is quite a lot of money when you consider that the typical taxpayer already pays just under £6,000 a year through PAYE. This could leave many taxpayers facing considerable financial hardship.”
“After mortgage payments, food and energy bills, a lot of 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 other creditors?”
“Other creditors can’t just deduct money from people's salaries on a whim – there are robust checks and safeguards. 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.”
He adds: “HMRC is not always right in its assessment of how much tax it is owed. When you think of the administrative errors that led to millions of pounds in tax credits being paid incorrectly, you have to wonder whether there ought to be stronger safeguards before HMRC is granted unfettered access to taxpayers’ paycheques.”
The new power forms part of the Finance Bill 2009, which is due to become law later this summer. At the moment HMRC can only deduct underpaid Income Tax and Capital Gains Tax or overpaid tax credits via PAYE once a court order has been obtained, but once the Finance Bill 2009 becomes law HMRC will be able to recover all taxes through PAYE without seeking the permission of the courts with taxpayers having to go through an appeals process in order to prevent deductions.
As pointed out by our experts, HMRC has previously been unable to recover overpaid tax credits from taxpayers however this legislation will mean that if tax credits are overpaid in future HMRC will be able to claw back the money very easily.
* The median UK salary is £479 per week according to National Statistics (£24,908 per annum)
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