Hardship warning as HMRC gets power to raid workers' salaries

Published on Friday 3 July 2009 20:28

NEW powers allowing the taxman to claw back up to £2,000 from workers' salaries to recover debts could plunge some people into serious financial hardship, a leading tax expert has warned.

Under rules included in the Finance Bill 2009, to be introduced later this summer, HM Revenue & Customs (HMRC) will have the power to take up to 2,000 a year through PAYE where it believes tax has been underpaid. Currently, HMRC has to get a taxpayer's consent or a court order to take money owed to it directly from salaries.

The new powers will enable HMRC to claw back underpaid income and capital gains tax, plus overpaid tax credits.

But Aileen Scott, tax partner at Campbell Dallas Chartered Accountants, warned the new powers could plunge taxpayers into debt and leave other creditors out of pocket.

She pointed out that, as the average taxpayer sees less than 6,000 deducted from the salary each year through PAYE for income tax and national insurance, an additional 2,000 levy could force some into financial hardship. Taking 2,000 from the average 5,917 PAYE deduction would equate to an extra 34 per cent loss of salary to tax.

"After mortgage payments, food and energy bills, a lot of taxpayers have very little left over every month," Scott said. "What's going to stop HMRC making deductions from taxpayers' salaries that leave them unable to pay utility bills or service other creditors?"

The new rule effectively places HMRC at the front of the debt-collecting queue, with other creditors having to pursue debtors through the courts and comply with various checks and safeguards. This short-cut increases the risk of taxpayers losing out as a result of any errors in HMRC's assessment of the amount of tax owed, Scott said.

"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' pay cheques," she said.