A quiet shift in debt enforcement rules is about to test the line between tough collection and fair treatment.
New powers are returning to the frontline of tax collection as the government tries to shrink the £46.8bn tax gap. HMRC says it will restart taking money directly from bank accounts in tightly defined cases, beginning with a “test and learn” roll-out.
What HMRC plans to do
HMRC will use Direct Recovery of Debts (DRD) to instruct banks, building societies and ISA providers to transfer funds from accounts where tax remains unpaid. The department says it will target people and businesses that can pay but refuse, not those in genuine hardship.
HMRC says it can recover tax directly from accounts when a debtor owes at least £1,000, has ignored contact, and has the means to pay.
Officials paused the tool during the pandemic. From 2015 to 2018, the department used it just 19 times, recovering £361,678 in total. The new deployment aims to scale up carefully while monitoring outcomes.
Who could be targeted
HMRC indicates that only a minority should face DRD. Cases could include persistent non-payers among:
- Company directors who have the cash but refuse repayment plans
- Self-employed traders with repeated late VAT or income tax bills
- Landlords who hold sufficient reserves yet ignore formal demands
- Higher-rate taxpayers with unpaid self-assessment liabilities
HMRC says it will leave at least £5,000 across an account after recovery, to prevent funds falling below a basic buffer.
An HMRC agent must visit a person’s home or workplace before any money moves. During that visit, the agent will verify the amount owed, discuss affordable options and check for vulnerability. If a debtor objects, they have 30 days to appeal. HMRC says it will not transfer the money before a decision, and debtors can escalate to a county court on set grounds.
Why now: the £46.8bn problem
Official figures put the tax gap at 5.3% in 2023/24, or £46.8bn. Ministers want to raise billions by tightening compliance. The government has signalled more prosecutions for fraud and more HMRC staff to pursue complex cases. DRD sits in that toolkit, alongside data matching, nudge letters and targeted audits.
How the safeguards line up
| Minimum debt | £1,000 or more |
| Contact history | Repeated HMRC communications ignored |
| Ability to pay | Evidence that the debtor can pay but is refusing |
| Minimum balance left | At least £5,000 remains after any recovery |
| Pre-recovery step | In-person visit at home or work |
| Appeal window | 30 days; county court routes available |
| Roll-out model | “Test and learn” phase, then broader use |
What banks will be asked to do
When HMRC serves an order, banks and building societies must transfer the specified sum. That can include funds held in ISAs. Providers will need to check balances against the £5,000 buffer before releasing any money. The obligation sits with the institution once HMRC issues a valid instruction.
Concerns and the debate over fairness
Anti-poverty and tax advice groups want stronger protections. The Low Incomes Tax Reform Group has pressed HMRC to set out exactly how it will identify vulnerable customers and what support follows. Campaigners warn that direct deductions risk mistakes and could spook people who already struggle to deal with official letters.
HMRC says most people who face genuine difficulty can set up “Time to Pay” plans and avoid enforcement. In a briefing, the department stresses a sympathetic approach when life events or business problems drive arrears. The test for DRD focuses on wilful non-payment rather than inability.
Your rights if HMRC targets your account
- Check the letter or visit is genuine; use published helpline numbers to verify.
- Ask for a breakdown of the amount and the tax periods involved.
- Propose a Time to Pay plan if cashflow is tight but income is steady.
- File an appeal within 30 days if you dispute the bill or the process.
- Keep records of calls, emails and visits in case you need to go to court.
DWP powers on the horizon
Later this year, the Public Authorities Bill is expected to give the Department for Work and Pensions its own route to recover funds from bank accounts using recovery orders. Welfare groups fear mission creep and a rise in state access to personal finances. Ministers argue that targeted powers help recover public money without blanket surveillance.
What this means for small firms and households
For owner-managed businesses, DRD raises the stakes for keeping on top of VAT, PAYE and corporation tax. A shortfall that drifts past reminders could now trigger a bank transfer rather than a drawn-out debt collection process. Households with irregular income, such as freelancers, should contact HMRC early if a self-assessment bill looks unpayable on the deadline.
A simple scenario
Imagine a sole trader owes £3,200 and has £9,500 spread across current and savings accounts with the same bank. The trader ignores letters and refuses a plan despite steady income:
- Threshold met: debt above £1,000, contact ignored, ability to pay indicated.
- Buffer check: at least £5,000 must remain after recovery.
- Potential transfer: HMRC could order £3,200. After payment, balances would total £6,300, which clears the buffer test.
- If the trader appeals within 30 days, the transfer pauses until HMRC rules.
How to reduce your risk now
Update your tax account details, open every HMRC letter, and correct any missing returns. Late filings often trigger estimated assessments that overstate the bill. Filing the actual numbers can shrink the debt and make a repayment plan easier to agree.
Budgeting for tax in a separate account helps. A rule of thumb for sole traders is to ring-fence a slice of each invoice for tax and National Insurance. If you run a company, keep PAYE and VAT in dedicated pots so payroll and quarterly liabilities do not collide with day-to-day spending.
What could go wrong, and how to put it right
Banks and HMRC work from the data they hold, so errors can happen. Mixed personal and business funds can complicate decisions about ability to pay. If a recovery order hits an account that contains someone else’s money—such as client funds—seek urgent advice and raise that point in your objection. Keep bank statements and contracts ready to evidence the position.
Scams remain a risk. HMRC will not demand payment by gift card or ask for banking PINs. If a call or message feels off, hang up and ring the official helpline. A genuine case file will match your online tax account.
The road ahead
DRD will not close a £46.8bn gap on its own, but it changes the calculus for those who weigh the odds of not paying. Combined with extra compliance staff and targeted prosecutions, the message is blunt: engage early or face firmer action. For most people, prompt contact and a realistic plan will keep money in their accounts and enforcement at bay.
Does the £5,000 buffer apply per institution or per individual? If I have multiple accounts across different banks (including an ISA), is the buffer checked per account or across all? Clear examples would help.
They paused DRD and only used it 19 times before—so what’s actually changed now? Feels like mission creep dressed up as “test and learn”. Also, who audits the “ability to pay” judgement? Color me sceptical, govrnment.