HMRC’s New Tax Debt Proposals: Could Money Be Taken Directly from Your Bank Account?
HMRC’s New Tax Debt Proposals: Could Money Be Taken Directly from Your Bank Account?
HMRC is consulting on plans to extend its debt-recovery powers to lower-value tax debts, potentially allowing monthly payments to be taken directly from a taxpayer’s UK bank or building society account.
The proposals are intended for individuals and businesses that persistently do not respond to HMRC’s attempts to collect money owed. Although the final limits have not been set, HMRC says debts covered by the measure are not expected to exceed £10,000, including interest and penalties.
How would the deductions work?
HMRC proposes collecting the debt through regular instalments rather than one lump sum. Before deductions begin, the taxpayer would receive a formal pre-deduction notice and a final opportunity to pay, contact HMRC or agree an alternative arrangement.
If there is no response, HMRC could instruct the relevant bank or building society to make specified deductions over a fixed period—similar in practice to a standing order. Where a taxpayer has more than one account, external data could help HMRC decide which account is most appropriate.
How would HMRC assess affordability?
HMRC says instalments should be large enough to clear the debt within a reasonable time, but not so high that they cause hardship or fail because there are insufficient funds. The consultation considers using indicators from credit reference agencies alongside HMRC’s own information.
For individuals, that internal information could include PAYE and Self-Assessment records. For businesses, HMRC might consider turnover shown in VAT returns or accounts. Credit reference information would be an indicator rather than the sole basis for deciding what is affordable.
Why are safeguards causing concern?
The Low Incomes Tax Reform Group has warned that vulnerable taxpayers could be harmed if robust protections are not built into the process. A key concern is that the proposals do not currently specify a minimum balance that must remain in a taxpayer’s account after deductions.
This differs from the existing Direct Recovery of Debts regime, under which HMRC must leave at least £5,000 across a debtor’s accounts. Without an equivalent protection, people on tight budgets could struggle to meet essential living costs.
There are also questions about how HMRC can accurately assess affordability when someone has not engaged—or is unable to engage. Records may not reflect a recent change in income, health, caring responsibilities or household costs. It will therefore be important to distinguish deliberate non-engagement from circumstances in which a person needs extra support.
What should taxpayers do?
The proposals are not yet final, but the message is clear: do not ignore HMRC correspondence. If you dispute a debt or cannot afford to pay it, contact HMRC promptly, check that the amount is correct and discuss a manageable payment arrangement. Keep copies of letters and details of any conversations.
Anyone who may be affected can respond to the consultation before it closes on 28 August 2026. The final design will need to balance efficient tax collection with fair, realistic safeguards for people and businesses facing genuine financial difficulty.