HMRC bank account raids and unintended consequences

Under powers revealed in last month's budget, HMRC is soon going to be able to take money direct from bank accounts without having to go through the traditional court process.

The lack of due process is indeed a worry. HMRC does get things wrong from time to time. But even assuming they didn't, what is the effect of these "bank raids" going to be?

Well directors or individuals potentially in dispute with HMRC (on latest count that is just about everyone) will think twice about leaving funds in a company or individual's bank accounts. That will cause liquidators and trustees in bankruptcy potential problems in simply identifying the funds. Some of the individuals will hand over wads of cash following an insolvency appointment; some of them wont. 

If there is already a petition on the go, then the trustee or liquidator subsequently appointed will presumably be able to demand funds back from HMRC. But if the funds have gone prior to the appointment, how long (if at all) will the directors have to get a liquidator appointed to get the funds back?  If the only asset is the bank account, then there will be no funds to pay for a liquidator, and that is surely unfair to the other creditors who have the same priority on winding up as HMRC.

If directors (or indeed the creditors) came to me and said "will you do this liquidation - the funds are all held by HMRC" I would have to think carefully if I was prepared to accept the appointment.

In England and Wales, the Official Receiver can be appointed in corporate cases where there are no funds. In Scotland, there need to be funds or you won't find a liquidator prepared to act. The most likely source of funds in such cases has been HMRC - so we can expect even fewer HMRC windings-up after the new rules arrive. They are not going to make an appointment if they might have to give the cash back, will they?

And has anyone thought about the bank's position in all of this? What if their security relies on the funds HMRC have taken - for example by offsetting accounts. What then? Time will tell.

It gets murkier the more you look at it. George Osborne is also giving HMRC the power to take money from you in anticipation of a court or tribunal finding that tax is due. Say HMRC takes the money and an insolvency practitioner is then appointed. How is the IP's ongoing court or tribunal case to be funded. HMCR would never take funds so that the taxpayer could not afford to fight a case - perish the thought.

But if HMRC were to lose, to what extent are they going to be liable for the consequences? How do you unwind the liquidation and put the other creditors, penniless directors and unemployed staff back where they would have been.  Money and health issues tend to go together, and you can't undo the unnecessary stress issues like this can cause.

And even if his advice is there is a such strong case that  - despite all the perils and pitfalls of litigating - an IP is brave enough to consider it,  does a liquidator want to fall out with HMRC (possibly his largest source of work) by starting down that road?

With trust deed appointments down 90% following recent rule changes a number of insolvency practitioners will be finding retirement an attractive proposition.

We wait to see the detail of the new rules. We were actually going to put in a link to the budget statement but we can't find where this specific point is hidden in the detailed releases.  But it is true. It is in the Daily Mail.