HMRC's power to access debtors' bank accounts could be against insolvency law

10 April 2014

The recent Budget gave new powers to HMRC to retrieve debt owed by individuals straight from their bank accounts. 

While they are entitled to that money, some suggest HMRC have put themselves in a difficult, even ‘illegal’ position when it comes to ‘preference’ in insolvency proceedings. ‘Preference’ refers to a debtor knowingly choosing one creditor over the other to make that creditor better off.  The insolvency practitioner involved in the case will look at the debtor’s actions leading up to his appointment and if evidence proves there was any wrongdoing, all parties involved could be liable.

If HMRC take all the debt they are owed before other creditors get a chance to, this could be seen by the law as preference, putting HMRC in a tricky situation. Often the biggest creditor in cases, HMRC be breaching the law by taking money that is owed to other creditors. At the point of insolvency, debt payments should be divided up equally so all creditors are treated equally.

The exact rules are yet to be made regarding this new move but it’s hoped this issue will considered and adapted by the government before the Finance bill is passed next year.