The proposed Direct Recovery of Debts (DRD) scheme, which was announced by George Osborne in this year's Budget, would allow HMRC the power to seize unpaid tax directly from individuals' and businesses' bank accounts without applying for court approval.
HMRC has said it would only target taxpayers who owed more than £1,000 and had sufficient funds to pay and still leave a minimum £5,000 buffer across all their accounts (including bank and building society accounts and ISAs).
It added that the move, which it likened to similar powers in Australia, Sweden and the US, would "level the playing field" between those who pay their taxes and those who seek to avoid them.
"Businesses are particularly concerned about the ability of the non-compliant to undercut their compliant competitors by not paying tax and thereby creating an unfair advantage," added the non-ministerial department.
Nevertheless the proposal, which is only expected to recover around £93.8m a year (less than 0.02% of all tax receipts), has been roundly criticised by business lobby groups, legal practitioners and MPs.
BPIF chief executive Kathy Woodward said: "We are opposed to HMRC having direct access to either companies' or individuals' bank accounts. This places all the power with HMRC who haven’t got a 100% record for getting calculations right and a poor record for rectifying errors in a timely manner.
"The industry works on a very tight cashflow and any error in transaction can have serious consequences for organisations of all sizes. Our Government and Industry Committee will continue to lobby on this area and we ask companies impacted to give us details so that we can substantiate our case."
Woodward's concerns were echoed by the Federation of Small Businesses (FSB), which warned that inaccurate or outdated HMRC records could lead to small businesses having money deducted from their accounts, reducing their cashflow and putting them at risk.
HMRC has said that it will "take into consideration" whether a business account is being used for trading, such as paying employee wages, and "in most cases" will prioritise recovering debts from savings rather than trading accounts.
When HMRC identifies a suitable account for DRD, it will first notify the bank or building society to freeze funds up to the value of the debt. The account holder will then be notified and will have 14 days from the date of notification to either pay by other means or object.
The proposed powers have also been questioned by members of the Treasury Select Committe, the chairman of which, Andrew Tyrie, said: "This policy is highly dependent on HMRC's ability to accurately determine which taxpayers owe money and what amounts they owe, an ability not always demonstrated in the past."
Meanwhile, the City of London Law Society described the proposals as "deeply flawed" and representing "a dangerous precedent regarding the balance of power between HMRC and taxpayers".
"We are not convinced that such fundamental and draconian proposals will achieve their intended goal," it added.
Alexander Jackman, head of policy at the Forum of Private Business (FPB), said: "Small firms are only just recovering from the increased regulatory burden of Real Time Information on their accounts and this is only set to increase with the introduction of pensions auto enrolment. As a result this makes them extremely wary of any plans to give additional powers to the taxman.
"The sheer variances of cashflow in different types of businesses and the limited resources available to effectively implement these proposals are also a real concern. These proposals, if introduced, could leave many of our members feeling that they are being unfairly targeted and government should seriously reconsider."
