HMRC direct recovery of debts from bank accounts, Digi Mart USA News (United Kingdom): The government will be able to take money from the bank accounts of tax evaders under new powers handed to HMRC by Chancellor John Healey.
Announcing the plans in his Budget last week, Mr. Healey said the move would allow the tax authority to collect overdue tax “from those who can clearly afford to pay,” but the plans have left many people worried.
The Independent explains how much HMRC can actually take and under what circumstances.
The policy allows HMRC to recover money owed by requiring banks and building societies to pay HMRC directly from a current or savings account, including Cash Individual Savings Accounts (ISAs), held by a customer in debt to the tax authority. HMRC can only consider Direct Recovery of Debts (DRD) over £1,000, and only after all other recovery routes have failed.
There is also a limit on how much the tax authority can take, and at least £5,000 must be left untouched across all of the debtor’s accounts. That means if a person in debt has £7,000 in savings, the most that could be taken to repay the debt would be £2,000.
This is intended to ensure HMRC does not put a hold on money needed to pay wages, mortgages or essential business or household expenses.
Other safeguards are also in place. Before HMRC can take any action, it must hold a face-to-face visit with the person in debt to confirm they are dealing with the right person.
In this meeting, officials will also discuss other payment options and any vulnerabilities the person may have.
There is also a 30-day window for customers to send an objection to HMRC. During this time, before any money is taken, customers can appeal, correct errors and set up a payment plan.
According to the Treasury, the new powers are aimed at people with low-value debts who can afford to pay but fail to do so. HMRC has said it will only take action against those who have established debts, have passed the timetable for appeals, and have repeatedly ignored attempts by the tax authority to make contact.
The powers also extend to companies. While the maximum debt for individuals would be £5,000, for a company it would be £10,000.
According to HMRC, about 90 per cent of people pay their taxes on time. In 2024 to 2025, HMRC brought in £858.9bn in tax, and the majority of that was paid on time, but just 10 per cent owed became debt.
Some customers require an additional prompt or reminder to pay what they owe, and a significant number pay once they are contacted.
These powers are described as an effective incentive to pay and were used only 19 times in two years before being paused during the Covid-19 pandemic.
