Millions of taxpayers face the prospect of money being taken directly from their bank accounts under controversial new plans being examined by HMRC. Tax specialists have raised concerns after the Government launched a consultation on extending powers that would allow HMRC to recover smaller unpaid tax debts through direct deductions from bank accounts.
Proposals Could Target Debts as Low as 1p
The proposals have prompted claims that the taxman could ultimately pursue debts as low as 1p, because the consultation does not currently specify a minimum debt threshold for the new regime. The proposals build on existing Direct Recovery of Debt powers which already allow HMRC to collect lump sums from the accounts of customers who refuse to pay what they owe and ignore efforts to engage with them.
At present, HMRC's existing powers can only be used where a taxpayer owes at least £1,000 and sufficient safeguards apply, including a requirement that debtors are left with at least £5,000 across their accounts. Under the new consultation, ministers are proposing to extend debt recovery powers to lower-value debts through regular deductions from bank accounts where taxpayers have repeatedly failed to engage with HMRC.
Government Cites Unpaid Debts Worth Over £2 Billion
The Government says more than 750,000 such debts worth over £2 billion remain unpaid each year despite more than nine months passing and at least 10 attempts to contact customers. The plans have sparked alarm among tax experts, who fear vulnerable taxpayers could be caught up in the process.
Nimesh Shah, chief executive of tax advisory firm Blick Rothenberg, described the proposals as a potential "sledgehammer" approach to debt collection. He told the Telegraph there was a risk HMRC could recover money that was not actually owed if assessments proved incorrect, while others questioned whether automatic deductions could leave struggling households facing further financial hardship.
Concerns Over Lack of Protections for Low-Income Taxpayers
Victoria Todd, head of the Low Incomes Tax Reform Group, said her organisation was concerned that the proposals do not currently include a minimum amount that must be left in a taxpayer's bank account. She warned that people living on tight budgets could struggle to meet essential living costs if deductions were made without adequate protections.
The row comes as ministers step up efforts to tackle Britain's tax debt mountain and narrow the so-called tax gap. According to HMRC, tax debt stood at £44 billion at the end of the 2024-25 financial year, while the Government is investing heavily in additional debt collection and compliance activity.
HMRC Denies Raiding Accounts Over Trivial Sums
HMRC strongly disputes suggestions that it will begin raiding bank accounts over trivial sums. A spokesperson said: "This consultation proposes extending existing powers to recover lower-value tax debts through direct monthly deductions from customers who persistently do not engage with HMRC, with safeguards for people including those who require extra support."
The tax authority points out that the measures would apply only after repeated attempts to contact taxpayers and would target people who can afford to pay but have failed to do so. HMRC says customers would be warned before deductions began and would be able to contact the department to discuss alternative payment arrangements.
Minister Defends Fairness of Extended Powers
Dan Tomlinson, Exchequer Secretary to the Treasury, said: "The vast majority pay on time and in full, so it's vital for a fair tax system that we seek to recover debt from those who can afford to pay but refuse to. These extended powers would ensure fairness for all taxpayers, while support will continue to be offered to those wanting help with their payments."
The consultation runs until August 28, with ministers seeking views on how the powers should operate and what safeguards should be put in place.
