Part 6: Administration and enforcement Section 51 and Schedule 8: Enforcement by deduction from accounts Details of the section and Schedule Part 1 of schedule 8: Scheme for Enforcement by Deduction from Accounts
Paragraph 1 explains that this part of the Schedule contains provision about the collection of amounts due and payable to HMRC by the making of deductions from accounts held with deposit-takers.
	Paragraph 2 defines the debts which are subject to DRD, using the concept of "relevant sum". Three conditions must be satisfied in order for DRD to apply. Condition A is that the sum is at least £1,000. Condition B is that the sum is either an "established debt" or one due under the accelerated payments legislation in Finance Act 2014. Condition C is that HMRC is satisfied that the debtor is aware that they owe the debt to HMRC. The government has committed to ensuring every debtor receives a face-to-face meeting from one of HMRC's officers before their debts are considered for recovery through DRD, to fulfil this objective. This will ensure that HMRC is satisfied that the debtor knows that they owe a debt, and will allow HMRC to assess whether or not the debtor is vulnerable, and remove them from the DRD process if that is the case.
	Paragraph 2(5) provides that an established debt is one against which there is no right of appeal or (where there is a right of appeal) the appeal period has either expired or the appeal has been settled or withdrawn.
	Paragraph 3 provides a definition of an "information notice" and when it may be issued to a deposit-taker. If HMRC believes that a person has failed to pay a relevant sum, they may issue an information notice to a deposit taker, where it appears the person holds one or more accounts with that deposit-taker. The information notice requires the deposit taker to provide HMRC with "prescribed information" within 10 working days about accounts held with them by the person. The information deposit-takers have to provide will be prescribed in secondary legislation.
	Paragraph 4(1) and (2) give HMRC the power to issue a "hold notice". A hold notice can only be issued to a deposit-taker by HMRC where it appears that a person has failed to pay a relevant sum and they hold one or more accounts with the deposit-taker. The hold notice must set out in particular:
	enough information for the deposit-taker to be able to identify the account holder and any account(s) to which the hold notice will apply;
	the amount of the relevant sum in respect of which the notice will have effect ("the specified amount");
	the "safeguarded amount" (the amount which must always be left available to the debtor across their accounts – defined in sub-paragraph (6));
	the order of priority of accounts subject to the notice; and
	any descriptions of account which (in whole or part) are to be disregarded for the purposes of the hold notice.
	Paragraph 4(4) provides for rules which have the effect that where hold notices are issued for the same debt to more than one deposit-taker, the total amount which might be held under those notices cannot exceed the total debt due to HMRC. This is to ensure HMRC can never use DRD to collect more than is due to it.
	Paragraph 4(6) provides a definition of "the safeguarded amount", which must be specified in the hold notice. This is a minimum of £5,000 which will continue to be available to the debtor whilst the hold is in place. HMRC will have the discretion to set the safeguarded amount at a higher amount in cases where it is reasonable to do so (for example, where a business may need to pay salaries to its employers whilst the hold notice is in effect). However, the hold notice does not need to specify a safeguarded amount if the deposit taker has already safeguarded £5,000 under a previously issued hold notice in respect of the same debt, within the last 30 days.
	Paragraph 5(1) provides that HMRC must consider whether someone is or may be at a particular disadvantage in dealing with their Revenue and Customs affairs before issuing an information notice under paragraph 3(2) or a hold notice under paragraph 4(1).
	Paragraph 5(2) provides that HMRC must take any matters identified under paragraph 5(1) into account when deciding whether to exercise the relevant power.
	Paragraph 5(3) provides that the HMRC Commissioners must publish guidance setting out the factors that are relevant when considering whether a person is at a particular disadvantage for the purposes of Schedule 8.
	Paragraph 6(1) and (2) sets out the requirement for the deposit-taker to give effect to a hold notice as soon as reasonably practicable after that notice is issued, and in any case within 5 working days from that date. It also requires the deposit-taker to ensure that until the hold notice ceases to have effect they must not allow the credit balance in each account subject to the hold notice to fall below the held amount. This concept is defined in paragraph 7.
	Paragraph 6(3) sets out the types of arrangements deposit-takers may employ to give effect to a hold notice. This means either ensuring the debtor's account does not drop below a particular balance or transferring an amount of funds into a separate 'suspense account'.
	Paragraph 7(1) explains that where only one account is affected by a hold notice the held amount is calculated as follows. The deposit-taker must first deduct the safeguarded amount (the amount specified in the notice that must continue to be available to the debtor) from the total amount available in the affected account. If there is less than the safeguarded amount available in the affected account, the held amount is nil, so no hold is placed on that account. If there is money left, a hold will be placed on the remaining credit balance up to the amount of the relevant sum– the amount of that hold is the held amount.
	Paragraph 7(2) explains that where there is more than one account subject to the same hold notice the held amount is calculated as follows. The deposit-taker must first determine the total amount available across all the accounts affected by the hold notice. Only if that total exceeds the safeguarded amount can any hold be placed on the accounts. If there is more than the safeguarded amount across the accounts, the deposit-taker proceeds to apply that safeguarded amount to those accounts. They must apply it first to the account which has the lowest priority (i.e. ‘reverse priority order’ – paragraph 7(5) defines "priority order"). So, it will be applied in the first instance to joint accounts (to best protect the rights of third parties), and then to sole accounts in opposite priority order to that which may be specified in the hold notice. For example, the order in the hold notice may say DRD applies to savings accounts first, then current accounts – so the safeguarded amount is matched first against current accounts, then savings accounts.
	Once the safeguarded amount has been fully matched against the available amounts across the accounts, the remainder of those accounts may be subject to a hold. The amount which is to be held is identified by applying the "specified debt" (the amount of debt specified in the hold notice) to the remainder in the available accounts, in the order of priority provided for under paragraph 7(5). So, it will be applied in the first instance to sole accounts in such priority order as may be specified in the hold notice, and then to any joint accounts.
	Paragraph 7(3) and (4) define the concepts of ‘available amount’ and ‘appropriate fraction’. The latter concept is relevant to determining what proportion of a joint account a debtor is deemed to own. A pro-rata approach is adopted – the debtor is deemed to own half if it is a joint account held with one other person; a third if it is held with two other people, and so on. A joint account holder can make an objection to the hold notice under paragraph 10(3) (d) if they consider that the proportion of the account which they have been deemed to own is inaccurate, and HMRC can adjust the hold notice should the objection be upheld.
	Paragraph 7(5) defines the priority order in which the hold should be applied to the relevant accounts. Under paragraph 7(5)(a) joint accounts will always have a lower priority than other accounts – to protect third party rights. Under paragraph 7(5)(b) and paragraph 4(2)(d) HMRC can specify the order in which the hold should be applied to other types of accounts.
	This worked example explains the operation of Paragraphs 6 and 7 of the schedule:
	The debtor ("P") owes HMRC a debt of £3,000 which has met all the legal and policy requirements for DRD. P holds three accounts with the deposit-taker– a joint account with his wife of £10,000, a savings account in his name only with £3,000 and a current account in his name only with £3,000.
	If HMRC issues the deposit-taker with a hold notice in respect of this debt, it must provide in the hold notice that the safeguarded amount is at least £5,000 (the minimum safeguarded amount).
	Under paragraphs 7(3) and (4), P is deemed to own £5,000 of the joint account held with his wife.
	Under paragraph 7(5)(a) all ‘sole accounts’ have higher priority than joint accounts.  So, when applying the safeguard of £5,000 in ‘reverse priority order’ the deposit-taker would first match it against the £5,000 which P is deemed to hold in the joint-account – exhausting that safeguard in this case.
	The deposit-taker then looks to place a hold on the remaining £6,000 (the total amount available in the two other accounts P holds). To determine how to apply this hold the deposit-taker will look to the terms of the hold notice – if HMRC has provided that the hold is to be applied to savings accounts ahead of current accounts, then the deposit-taker would hold the £3,000 in the savings account, leaving P’s current account untouched.
	Paragraph 8 describes the duty of the deposit-taker to notify HMRC that they have applied a hold notice to one or more accounts, and the consequent obligation on HMRC to notify affected parties. The deposit-taker is also provided with a discretion to notify anyone affected by the hold, but they are only entitled to do this once they have imposed the hold.
	Under paragraph 8(3) the deposit-taker must provide HMRC with prescribed information within 5 working days of the day it places a hold on the account. Secondary legislation (The Enforcement by Deduction from Accounts (Prescribed Information) Regulations 2015 (S.I. 2015/1986)) specifies what this prescribed information comprises. On receipt of this notification from the deposit-taker, HMRC must provide a copy of the hold notice to the debtor within 5 working days and provide joint-account holders and interested third parties with details of how the account they have an interest in is affected, and of their rights to bring objections and an appeal.
	Paragraph 8(7)(b) provides a further safeguard to allow the debtor to object to an unintended error whereby a payment could have been made to HMRC during the period between the hold notice being applied and HMRC notifying the debtor of this action, but the payment is yet to reach HMRC. This paragraph therefore makes sure that, in writing to the debtor, HMRC sets out clearly which debts the notice applies to, so that P can object if a payment has already been made.
	Paragraph 9 makes provision for HMRC of its own accord to cancel or reduce the specified amount in the hold notice it has issued, and places requirements on the deposit-taker to implement any notice making such changes which it receives.
	Paragraph 10 explains that the debtor, anyone who holds a joint account with the debtor which is affected by the hold notice, or an interested third party, can raise an objection to the hold notice to HMRC. The grounds for doing so are set out in paragraph 10(3) and are summarised as follows:
	That the relevant sum to which the hold notice has effect has already been paid
	That at the time of the hold notice being issued, the debtor did not have an account with the deposit-taker,
	That the hold notice will cause exceptional hardship to the debtor or an interested third party (such as other joint account holders)
	That an additional interested third party should be considered.
	Paragraph 10(5) provides that objections must be brought within 30 days from the date the hold notice is given, or for a third-party who was not given such notice, within 30 days from the date the debtor is given notice.
	Paragraph 11 provides how HMRC will deal with any objections which are brought. When HMRC receives objections (for example which suggest that HMRC has made a mistake or that the effect of the hold notice will cause undue hardship), it will promptly carry out an internal review of the case, and in no longer than 30 days. If there is clear evidence that DRD action will cause undue hardship, or that HMRC has made a mistake, it will instruct the deposit-taker to release an appropriate amount to the debtor.
	Paragraph 11(2) prescribes the action HMRC may take having considered an objection. HMRC may amend the amount specified as safeguarded (e.g. to allow additional funds to be made available to the debtor, in excess of the £5,000 minimum), exclude certain accounts from the scope of the notice, or exclude a specified credit balance in an account from the notice.
	Paragraph 11(3) and (4) require HMRC to notify their decision to each person who objected to the hold notice and to notify the deposit holder where the hold notice is cancelled or amended. HMRC is also required to notify all other third parties who it is aware of who may be affected by an amended hold notice.
	Paragraph 12 provides that the debtor, anyone who holds a joint account with the debtor which is affected by the hold notice, or an interested third party, can appeal to the county court. An appeal can only be made where an objection has been determined in accordance with paragraph 10.
	Paragraphs 12(3) sets out that the grounds for making an appeal are the same as for making an objection, e.g. that the hold notice is causing undue hardship etc. These vary depending on whether an appeal is brought against the decision not to cancel the hold notice, or just on the basis of quantum. As set out in paragraph 2, this measure will only be applied to established debts where debtors will have already had the option to appeal against the underlying liability. Appeals brought at this stage are therefore confined to issues relating to HMRC’s decision to use DRD rather than another enforcement tool, or the way in which it has used DRD in a particular case.
	An appeal under paragraph 12 must be made within 30 days from the day on which the debtor, joint-account holder or interested third party was given notice by HMRC of the outcome of the objection under paragraph 10.
	Paragraph 12(7) sets out the powers of the county court on an appeal under this paragraph. The court’s power to amend the hold notice is the same as HMRC’s power to make amendments under paragraph 11(2) in determining an objection. However, paragraph 12(9) permits the court, in cases where the appeal has been made on the grounds of exceptional hardship to suspend the effect of all or part of a hold notice where adequate security is provided by the debtor or another pending determination of the appeal.
	Paragraph 13(1) – (2) sets out HMRC’s power to give a deduction notice to a deposit-taker. A deduction notice can only be issued where a hold notice is in force in respect of which money is being held by the deposit-taker under that notice, and there is no longer any possibility of objections or appeals continuing or being made in respect of that hold notice. Paragraph 13(7) provides that the amounts to be deducted cannot exceed what is owed to HMRC. Paragraph 13(11)(b) provides that deposit-taker must keep a hold in place on the relevant account until all the necessary payments have been made to HMRC, at which point the deduction notice automatically ceases to have force.
	Paragraph 14 provides for penalties to be chargeable where a deposit-taker fails to comply with the terms of an information notice, a hold notice or a deduction notice, or fails to adjust hold arrangements when required to do so. Also, liability for a penalty will arise under paragraph 14(1)(g) if after receipt of an information notice or hold notice the deposit-taker makes a disclosure which has the effect of ‘tipping-off’ the debtor. These penalties comprise a fixed penalty of £300 and a daily-default penalty of £60.
	Paragraph 14(5) provides that HMRC may extend the time limit for a deposit-taker to comply with a notice, and that no penalty will be chargeable during the extended period. Paragraph 14(6) and (7) provide the deposit-taker with a reasonable excuse defence.
	Paragraph 15 sets out the time limits for making an assessment of a penalty under paragraph 13.
	Paragraph 16 provides deposit-takers with a right to appeal against an assessment of a penalty, or against the quantum of a penalty assessment. An appeal must be in writing and given within 30 days of the issue of the penalty assessment. Appeals against a penalty assessment are made to the First-tier Tribunal and are subject to the standard tax appeal provisions contained at Part 5 of TMA 1970.
	Paragraph 17 requires a penalty to be paid within 30 days of the issue of the penalty notice or within 30 days from the date an appeal against the penalty is finally determined, whichever is later.
	Paragraph 18 protects deposit-takers from claims to damages in respect of anything they do in good faith when complying with a hold notice or a deduction notice.
	Paragraph 19 provides HMRC Commissioners with the power to make secondary legislation varying time limits specified in the Schedule.
	Paragraph 20 provides HMRC Commissioners with powers to make secondary legislation for the purpose of supplementing the Schedule.
	Paragraph 21 contains provisions concerning how the secondary legislation making powers contained within the Schedule may be exercised.
	Paragraphs 22 and 23 contain provisions relating to interpretation.
	Paragraph 24 provides that DRD only extends to England, Wales and Northern Ireland.