Recently, HMRC announced that it plans to chase lower value tax debt more aggressively by direct recovery of debt powers being extended to lower value tax debts worth up to £10,000, with direct access to its’ ‘customers’ bank accounts, subject to a national consultation.
Background
The debate on this subject has been ongoing since 2015 when direct recovery of debts from bank accounts was introduced. The then new powers, legally required HMRC to leave a minimum balance of £5,000 across all accounts. Now it would seem HMRC are planning to attack even lower hanging fruit, but the new consultation does not include any mention of what would be the minimum figure.
CIOT (The Chartered Institute of Taxation) have warned that the planned new powers to access small tax debts below £10,000, directly from taxpayer bank accounts, ‘could leave vulnerable individuals struggling to meet essential living costs’.
The consultation
The lower value tax debt consultation from HMRC sets out proposals for extending existing enforcement powers to ‘recover lower value tax debts from customers, based on the proviso that they have persistently not engaged with HMRC. The powers would enable HMRC to collect debts by taking ‘affordable’ in their words, ‘monthly instalments directly from the customer’s UK bank or building society account’.
HMRC claims that they would ensure that these ‘affordable monthly instalments’ would be manageable. However, the Low Incomes Tax Reform Group (LITRG) are very concerned that ‘some vulnerable taxpayers would be adversely affected if adequate protections are not built into the new process’. HMRC stressed its ‘goal is to strike a balance between the payments being large enough to clear the debt in a reasonable time, but not so high as to impose hardship on the customer.’
As to how an assessment on affordability would be operated, the consultation wants views on whether credit referencing agencies, such as ClearScore, Experian and Equifax (CRSs) could provide an indicator of affordability. They plan to use the feedback from the agencies to help determine appropriate deduction amounts. However, any information obtained from a CRA would be used only as an ‘indicator’ to inform an assessment, HMRC stressed.
How HMRC plan to assess ‘ability to pay’
The consultation papers, in a throwaway line, also suggested HMRC’s internal data could also be used to assess how much a tax debtor could pay. Digging a little deeper into the accompanying notes, they have suggested for individuals this would include Tax returns, PAYE records and self-assessment returns and for businesses, recent turnover figures from VAT returns or accounts would provide a similar indication.
HMRC said taxpayers would be notified in advance and given a ‘final opportunity to pay or contact HMRC, before any deduction action and that we will send the customer a formal Pre-Deduction Notice (PDN) informing them of our intention to commence deductions,’ the consultation stated. If the taxpayer ignores the notice, HMRC will send a deduction instruction to his/her bank, instructing them to begin making the specified deductions for a specific period of time, with defined start and end dates,’ the paper stated.
If, however, a taxpayer has multiple accounts, HMRC said it is ‘exploring using external data from CRAs to decide which account is the most appropriate to deduct payments from’. The ‘upper value limits’ have yet to be decided, but HMRC have stated it ‘does not expect debts to normally exceed £10,000’, HMRC added, ‘we are also mindful that there may be a need to apply a lower debt value limit for individuals’.
Taxpayers groups are not happy
Victoria Todd, head of LITRG, said ‘It is important that, before any action is taken to recover a debt directly, HMRC are satisfied that the debt has been correctly identified and is genuinely due. We are particularly concerned that the proposals do not include a minimum amount that must be left in a taxpayer’s account. For those living on a tight budget, deductions could leave them struggling to meet essential living costs’.
Todd went on to questions just how HMRC will assess what is affordable for a taxpayer if they haven’t engaged, or if HMRC can’t engage with them for any reason, such as ill-health. Without up-to-date information about an individual’s circumstances, there is clearly a risk that deductions could be set at an unaffordable level.
HMRC responded by stating: ‘Financial hardship alone would not necessarily exclude someone from this measure; it is possible for customers to be in temporary financial difficulties yet still be capable of engaging with HMRC.’ In other words, it appears that they simply do not care.
The consultation will close on 28 August 2026.
Accountant’s view
It strikes me, having read through the consultation and detailed accompanying notes, that this is a consultation in name only. Despite Victoria Todd raising a number of valid points, HMRC’s response seems to have been, ‘trust us to do the right thing. However my experience and that of many taxpayers and small businesses would suggests that trusting the tax office is at best naïve and almost certainly very foolish.
HMRC can now raid your bank account
Recently, HMRC announced that it plans to chase lower value tax debt more aggressively by direct recovery of debt powers being extended to lower value tax debts worth up to £10,000, with direct access to its’ ‘customers’ bank accounts, subject to a national consultation.
Background
The debate on this subject has been ongoing since 2015 when direct recovery of debts from bank accounts was introduced. The then new powers, legally required HMRC to leave a minimum balance of £5,000 across all accounts. Now it would seem HMRC are planning to attack even lower hanging fruit, but the new consultation does not include any mention of what would be the minimum figure.
CIOT (The Chartered Institute of Taxation) have warned that the planned new powers to access small tax debts below £10,000, directly from taxpayer bank accounts, ‘could leave vulnerable individuals struggling to meet essential living costs’.
The consultation
The lower value tax debt consultation from HMRC sets out proposals for extending existing enforcement powers to ‘recover lower value tax debts from customers, based on the proviso that they have persistently not engaged with HMRC. The powers would enable HMRC to collect debts by taking ‘affordable’ in their words, ‘monthly instalments directly from the customer’s UK bank or building society account’.
HMRC claims that they would ensure that these ‘affordable monthly instalments’ would be manageable. However, the Low Incomes Tax Reform Group (LITRG) are very concerned that ‘some vulnerable taxpayers would be adversely affected if adequate protections are not built into the new process’. HMRC stressed its ‘goal is to strike a balance between the payments being large enough to clear the debt in a reasonable time, but not so high as to impose hardship on the customer.’
As to how an assessment on affordability would be operated, the consultation wants views on whether credit referencing agencies, such as ClearScore, Experian and Equifax (CRSs) could provide an indicator of affordability. They plan to use the feedback from the agencies to help determine appropriate deduction amounts. However, any information obtained from a CRA would be used only as an ‘indicator’ to inform an assessment, HMRC stressed.
How HMRC plan to assess ‘ability to pay’
The consultation papers, in a throwaway line, also suggested HMRC’s internal data could also be used to assess how much a tax debtor could pay. Digging a little deeper into the accompanying notes, they have suggested for individuals this would include Tax returns, PAYE records and self-assessment returns and for businesses, recent turnover figures from VAT returns or accounts would provide a similar indication.
HMRC said taxpayers would be notified in advance and given a ‘final opportunity to pay or contact HMRC, before any deduction action and that we will send the customer a formal Pre-Deduction Notice (PDN) informing them of our intention to commence deductions,’ the consultation stated. If the taxpayer ignores the notice, HMRC will send a deduction instruction to his/her bank, instructing them to begin making the specified deductions for a specific period of time, with defined start and end dates,’ the paper stated.
If, however, a taxpayer has multiple accounts, HMRC said it is ‘exploring using external data from CRAs to decide which account is the most appropriate to deduct payments from’. The ‘upper value limits’ have yet to be decided, but HMRC have stated it ‘does not expect debts to normally exceed £10,000’, HMRC added, ‘we are also mindful that there may be a need to apply a lower debt value limit for individuals’.
Taxpayers groups are not happy
Victoria Todd, head of LITRG, said ‘It is important that, before any action is taken to recover a debt directly, HMRC are satisfied that the debt has been correctly identified and is genuinely due. We are particularly concerned that the proposals do not include a minimum amount that must be left in a taxpayer’s account. For those living on a tight budget, deductions could leave them struggling to meet essential living costs’.
Todd went on to questions just how HMRC will assess what is affordable for a taxpayer if they haven’t engaged, or if HMRC can’t engage with them for any reason, such as ill-health. Without up-to-date information about an individual’s circumstances, there is clearly a risk that deductions could be set at an unaffordable level.
HMRC responded by stating: ‘Financial hardship alone would not necessarily exclude someone from this measure; it is possible for customers to be in temporary financial difficulties yet still be capable of engaging with HMRC.’ In other words, it appears that they simply do not care.
The consultation will close on 28 August 2026.
Accountant’s view
It strikes me, having read through the consultation and detailed accompanying notes, that this is a consultation in name only. Despite Victoria Todd raising a number of valid points, HMRC’s response seems to have been, ‘trust us to do the right thing. However my experience and that of many taxpayers and small businesses would suggests that trusting the tax office is at best naïve and almost certainly very foolish.
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