Chancellor John Healey’s plans to expand HMRC’s authority to recover unpaid tax directly from bank accounts have prompted concerns about the accuracy of debt calculations and the protections available to taxpayers.
Announced in the Budget on 28 October 2026, the new powers are scheduled to take effect from July 2029. They will allow HM Revenue and Customs (HMRC) to collect overdue tax through regular deductions from the bank accounts of individuals and businesses that can afford to pay but repeatedly fail to respond to the department.
- Chancellor John Healey’s Budget introduces new HMRC powers to recover tax debts directly from bank accounts starting in July 2029.
- The measures will cover established debts of up to £5,000 for individuals and £10,000 for companies, using regular deductions based on affordability.
- Tax advisers have raised concerns about incorrect debt calculations, missed notices and whether HMRC can distinguish deliberate non-payment from genuine financial difficulties.
The measures form part of the government’s wider effort to reduce unpaid tax and improve debt collection. However, tax specialists have questioned how HMRC will assess affordability, determine whether debts are final and correct errors before money is withdrawn.
How John Healey’s HMRC bank account powers will work
The proposed system will cover established tax debts of up to £5,000 for individuals and £10,000 for companies, including applicable interest and penalties. UK HMRC self-employed tax reform to trigger £17 bn cash-flow hit in 2029.
Unlike HMRC’s existing Direct Recovery of Debts (DRD) system, which allows a one-off recovery from an account, the new framework will permit regular instalments.
HMRC will determine whether deductions are affordable and calculate the amount and duration of repayments.
According to the government’s published policy, the powers will be used only after standard collection procedures have been exhausted. This would typically involve around 10 attempts to contact the taxpayer over nine to 12 months.
The measures will not apply to taxpayers who engage with HMRC to resolve their debts, including those already discussing repayment arrangements. HMRC bank account access powers could expand to recover unpaid tax debts in the UK.
Implementation will be phased, beginning with companies before extending to individuals.
The government intends to publish draft legislation and an initial Code of Practice for consultation in summer 2027. Detailed operational rules and safeguards have therefore not yet been finalised.
What HMRC can already take from bank accounts
HMRC already has authority under DRD rules to recover certain unpaid tax directly from current accounts, savings accounts and cash Individual Savings Accounts (ISAs).
The existing system applies to established debts exceeding £1,000, provided at least £5,000 remains in the taxpayer’s accounts after recovery.
Before using the power, HMRC must make repeated attempts to contact the taxpayer. Individuals are also entitled to a face-to-face visit, allowing officials to confirm the debt and discuss repayment options.
Once funds are placed on hold, the taxpayer has 30 days to object. The money remains with the bank during that period, and HMRC must consider objections before transferring it.
DRD was suspended during the COVID-19 pandemic. HMRC restarted the process in a controlled testing phase in September 2025 and began extending its use in April 2026.
The proposed 2029 powers would provide a separate mechanism for collecting smaller debts through recurring payments.
Tax advisers question safeguards against incorrect deductions
James Kipping, head of private client at accountancy firm MHA, warned that the expansion raises questions about how HMRC establishes that a tax debt is correct and legally enforceable.
He also questioned whether officials could reliably distinguish taxpayers who deliberately refuse to cooperate from those unable to respond because of personal circumstances or other difficulties.
Kipping highlighted uncertainty over the financial information HMRC would use to assess income and affordability, as well as how quickly taxpayers could stop deductions and recover money taken in error.
He described the proposal as moving towards a payment arrangement imposed by HMRC, with the department assessing affordability and collecting recurring instalments without a taxpayer’s agreement.
Rachel Nutt, tax partner at MHA, said most compliant taxpayers were unlikely to be affected. Nevertheless, she stressed the importance of safeguards, particularly where debts remain disputed or alternative recovery options have not been exhausted.
Nutt also raised concerns about communication failures, citing situations in which HMRC believes it has issued a notice but neither the taxpayer nor their professional adviser has received it.
The government says the new framework will include affordability assessments, human oversight for vulnerable taxpayers and opportunities to challenge decisions.
Its proposed protections include:
- Advance notice before deductions begin.
- Individual affordability assessments.
- Manual review for customers requiring additional support.
- Suspension of recovery when a taxpayer contacts HMRC to manage the debt.
- Access to complaints, appeals and redress procedures.
- A refund-first approach when taxpayers report that money has been taken incorrectly, while their objection is investigated.
HMRC maintains that the powers are intended for people who have the means to settle their liabilities but repeatedly refuse to engage.
The department says taxpayers can contact it at any stage to discuss alternative repayment arrangements.
Government expects additional tax revenue
The measures are part of Labour’s strategy to reduce the difference between tax owed and tax collected.
HMRC estimates that the UK’s tax gap reached £59.2 bn in the 2024/25 financial year, equivalent to 6.4% of theoretical tax liabilities.
The government forecasts that the new bank account recovery powers will generate:
| Financial year | Expected additional revenue |
|---|---|
| 2029/30 | £50 mn |
| 2030/31 | £255 mn |
| 2031/32 | £320 mn |
The Budget also includes £70 mn over five years to expand HMRC’s work with private debt collection agencies.
A further 670 compliance officers are expected to be recruited by 2029/30, alongside previously announced recruitment plans.
Separately, from April 2029, certain businesses will be required to establish direct debit instructions for VAT and PAYE liabilities. They will retain the option of paying through other methods before the relevant deadline, with direct debit used to collect outstanding balances.
HMRC is also increasing scrutiny of limited liability partnerships (LLPs), particularly the tax status of their members.
The approach follows a July 2026 Supreme Court judgment involving BlueCrest Capital Management and the application of salaried-member tax rules, which determine when LLP members should be treated as employees for tax purposes.
What taxpayers should do if they owe HMRC money
The proposed powers are directed at taxpayers who have the resources to pay but do not respond to repeated attempts to resolve their debts.
People who cannot afford to settle a tax bill in full can contact HMRC to discuss a Time to Pay arrangement, which may allow eligible debts to be repaid through monthly instalments.
Taxpayers should also check that outstanding demands are accurate, particularly where tax codes, interest calculations or previous payments are disputed.
Practical steps include:
- Contacting the department can prevent a case from progressing towards enforcement.
- Review tax calculations, payment records and any outstanding assessments.
- Ask about a Time to Pay agreement if immediate settlement is not possible.
- Keep copies of correspondence and evidence supporting any objection.
- An accountant, tax adviser or debt advice organisation may be able to help resolve disputes or financial difficulties.
Taxpayers should also remain alert to fraudulent messages claiming to be from HMRC. Anyone uncertain about a payment request should verify it through official government contact channels.
Will HMRC be able to take money without permission?
Under the existing DRD framework, HMRC can already recover qualifying tax debts from bank accounts without obtaining a court order, subject to statutory safeguards.
The new powers would extend direct recovery to lower-value debts through regular instalments, but only after repeated unsuccessful attempts to contact taxpayers.
They are not expected to affect people who pay their taxes on time or actively engage with HMRC to resolve outstanding liabilities.
The central concern is whether the department’s systems can accurately identify debts, assess financial circumstances and prevent inappropriate deductions.
Although the government has committed to additional protections, their effectiveness will depend on the final legislation, the Code of Practice and how HMRC implements the system before its planned introduction in July 2029.
