HMRC to Increase Use of Charging Orders for Unpaid Tax

March 21, 2013

Chancellor George Osborne announced in the Budget statement this week that HM Revenue and Customs (HMRC) is to increase its use of charging orders to recover unpaid tax.

The move is to be part of a series of measures to toughen up on tax avoiders.

Charging orders are court issued and allow creditors to secure the debt against any properties owned by the debtor, or any other assets. Whilst these orders are an effective way of handling unpaid debt, they are also contentious.

Earlier this year, the Office of Fair Trading (OFT) criticized NatWest and RBS for being too quick to impose charging orders on customers who were behind on their repayments.

The OFT also imposed extra requirements on HFC Bank Limited, Alliance and Leicester, American Express and Welcome Financial Services in 2010 over their use of charging orders.

The Chancellor also announced that measures would be taken to make repayment easier, such as updating its systems so repayments could be made by telephone via an automated system.

He announced that the government would look at reforming HMRC’s ‘coding out’ system, which is a way to collect debts via a tax debtor’s tax code.

Currently the HMRC can only recover £3,000 per year through the tax code system. However, the new system will allow debts to be collected on a graduated scale depending how much the debtor earns, with an up to £17,000 limit for those earning £90,000 and above.

The Chancellor also set out other changes in the Budget to clamp down on tax avoidance, which should save £4.6bn in the next five years.