HMRC’s Bold Move: Direct Bank Account Deductions for Unpaid Taxes

Overview

In a significant policy shift, HM Revenue & Customs (HMRC) can now directly withdraw funds from the bank accounts of individuals who owe more than £1,000 in unpaid taxes. This decision, hailed by some as necessary and criticized by others as ‘draconian’, aims to tackle rising outstanding tax debts.

Understanding the New Powers

Under the Direct Recovery of Debts (DRD) scheme, HMRC agents will have the authority to retrieve funds from bank accounts of those who have persistently ignored tax payment requests. This applies to a variety of accounts, including cash ISAs, impacting individuals who either require self-assessment for their taxes or have significant income from investments and secondary properties.

This initiative, initially launched in 2015 but paused due to the pandemic, has emerged from its hiatus following Chancellor Rachel Reeves’ green light in the Spring Statement of March 2025.

Who Will Be Affected?

Targeting primarily self-employed individuals and others with substantial investment income, HMRC’s focus is on those who possess the financial capability to pay their dues but have failed to do so. With an outstanding tax debt total of £42.8 billion, HMRC aims to recoup upwards of £11 billion by the end of 2030.

What to Expect

Before any deductions occur, HMRC will conduct a face-to-face visit with the taxpayer. Agents will confirm the identity of the taxpayer and the legitimacy of the debt, discussing possible repayment methods. Crucially, taxpayers must still retain at least £5,000 in their accounts to cover essential expenses.

The guidelines also allow for a 30-day appeal period once a taxpayer has been notified before any funds can be seized.

Considerations for Vulnerable Taxpayers

Recognizing the need for safeguarding, HMRC will refrain from targeting individuals classified as ‘vulnerable’ under this scheme. Despite these provisions, the current initiative has faced scrutiny from tax experts.

Expert Opinions

Dawn Register, a partner at BDO specializing in tax dispute resolution, asserts that HMRC’s renewed enforcement measures reflect a rigorous approach to public finance. She cautions taxpayers against ignoring HMRC’s requests, emphasizing the importance of proactive communication with the tax authority.

The Bigger Picture

As unpaid tax continues to climb to levels higher than pre-pandemic figures, the government has committed £630 million to enhance HMRC’s debt recovery efforts through an increase in staffing and resources.

Conclusion

The reintroduction of direct bank account deductions positions HMRC as a more assertive player in tax collection, particularly for those who can afford to pay but choose not to. Taxpayers should remain vigilant, ensuring they remain compliant to avoid the unpleasant consequences of unpaid taxes.

Key Takeaway: If you owe taxes, it’s crucial to communicate with HMRC and explore your repayment options rather than risk a direct deduction from your bank account.