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HMRC - Direct Recovery of Debts

We limit our response to issues relating to credit unions as small deposit-taking institutions which will incur costs and administrative requirements as a result of the proposed reforms. We do not comment on the basis for the concept of direct recovery per se.

In general we do not feel that this initiative is likely to impact many credit unions very heavily given the generally-lower balances which credit unions tend to hold on behalf of their members in comparison with larger deposit-takers. However, the proposals will impact all credit unions to some degree and, particularly, our larger, employment-based members.

In order for credit unions to comply, new systems will be required for producing a report on a members’ account activity in an appropriate format, as well as putting a stop on member funds and making provision to transfer all or a proportion of these funds to HMRC either as a one-off payment or periodically. This implies systems design costs and staff, training and administrative costs as well as potentially placing credit unions in the position of having to deal with angry members whose funds have been seized by HMRC through no decision of the credit union. We would also suggest that in the case of proposed periodic seizures, a debtor might divert regular payments elsewhere in order to avoid seizure from one particular account and there is limited scope for a deposit-taker to do much about these in-bound payments.

In general we would suggest that the burden of these proposals as a cost upon a deposit-taker is likely to affect credit unions disproportionately given their position as smaller institutions with less available capital and more limited resources generally. As many credit unions strive to gain sustainability, they are under pressure to devote as much time and effort as possible to growing their business, controlling costs and increasing lending. As such, the cost of initiatives such as facilitating the direct recovery of HMRC debts is likely to affect a credit union disproportionately as compared with comparable deposit-taking institutions.

With this in mind, we would suggest that HMRC should take steps to mitigate the impact of these proposals upon credit unions by lengthening the time period in which deposit-takers are required to submit account data to HMRC from 5 to 10 working days; providing the same length of time for deposit-takers to transfer any funds; and offering considerations of a deposit-takers’ size and sophistication as a potential mitigating factor where considering sanctions against a deposit-taker that might fail to meet its requirements but can demonstrate that this was due only to capacity issues and had no malicious intent.

The principle of protecting a relevant proportion of a joint account’s funds where it is held in the name of two or more people of whom not all are indebted to HMRC seems reasonable. We also broadly agree that a 12 month assessment of an individual’s account data should be sufficient to establish a reasonable view of their cash assets.

Credit unions support the underpinning rationale for this proposal as a responsible sector which wishes to support HMRC’s legitimate right to collect unpaid tax. We only caution that the costs of complying with these requirements are not the same for all affected institutions and their likely disproportionate impact on smaller bodies like credit unions should be formally recognised.

The full response can be downloaded on the right hand side.