The government said on 28 October that HM Revenue and Customs will keep developing a power to recover tax debts up to £5,000 from individuals by bank deductions rather than lump sums.
The ceiling for companies would be £10,000. HM Revenue and Customs (HMRC) would consider the power only after standard collection had been exhausted, after around 10 contact attempts over 9 to 12 months.
The policy would be introduced in phases, starting with companies before extending to individuals. The government said a “test and learn phase” is planned before wider implementation.
It intends to publish a first draft of the Code of Practice and draft legislation for technical consultation in Summer 2027.
Each year around 750,000 debts worth £2bn that debt collection agencies have tried to collect for HMRC are returned unpaid, according to the consultation outcome. HMRC expects fewer than 250,000 deduction plans to be started each year.
HMRC already has a bank-account power, Direct Recovery of Debts (DRD), introduced in 2015. It allows only a one-time lump sum, and applies where more than £1,000 is owed and at least £5,000 would remain in the account after deduction.
The DRD process is manual. HMRC issues information notices to banks, funds are temporarily held, and the customer gets 30 days to object or pay before any money is taken.
The House of Commons Library traces DRD to the 2014 Budget, when the then Chancellor, George Osborne, announced plans to extend HMRC’s powers over bank and building society accounts. It was enacted in the Finance (No.2) Act 2015.
The 2015 Budget said the measure would carry safeguards including a county court appeal process and a face-to-face visit to every debtor. The Library records that the 2014 proposals were strongly criticised by taxpayer groups, accountancy bodies and the Treasury Committee.
The government’s own estimate in 2015 was £20m raised in 2015/16, rising to £100m in 2016/17, affecting around 11,000 individuals and businesses a year.
An HMRC review in April 2019 said DRD had contributed towards collecting £178m of tax revenue between April 2016 and December 2018.
The new power carries its own safeguards. They include an affordability assessment before deductions begin, manual review by a trained HMRC officer for customers who need extra support, and advance notice. HMRC would also run a “refund first” policy while investigating a claim that a payment was taken in error.
Joint accounts stay in scope, but HMRC would look at a customer’s sole accounts first. The policy covers established tax debts and Child Benefit debt, with Tax Credits debts excluded.
The consultation ran from 23 June 2026 to 28 August 2026 and drew 65 written responses, 34 from individuals and 31 from organisations. Respondents broadly supported action, but some proposed lower thresholds of between £1,000 and £3,000 for individuals and £5,000 for companies.
The government said it will consider whether an operational threshold should be set out in the Code of Practice. HMRC is to co-design that code with deposit takers, tax and debt advisers and representative bodies ahead of the Summer 2027 draft legislation.
