From July 2029, HMRC will have new powers to recover lower-value tax debts directly from taxpayers' bank accounts through automated deductions. The measure, confirmed in last week's Budget, applies to tax debts of up to £5,000 for individuals and up to £10,000 for companies where the taxpayer has repeatedly failed to engage with HMRC.
The Chartered Institute of Taxation's Low Incomes Tax Reform Group (LITRG) has warned that 'strong safeguards' will be needed to 'protect vulnerable people and prevent financial hardship'. The warning follows a consultation in summer 2026 and the confirmation in the Budget.
Concerns over impact on vulnerable taxpayers
In its consultation response, LITRG warned that non-engagement may reflect financial hardship, vulnerability or difficulties accessing support, rather than an unwillingness to pay. It also noted that automated affordability assessments may not reflect taxpayers' actual financial circumstances and stressed that lower-value debts should not attract a lower standard of protection simply because the sums owed are smaller in HMRC's terms.
While the initial proposals have been amended to include some additional safeguards, LITRG says it 'remains concerned' about the impact on people who face barriers to engagement, how they will be protected, and how HMRC will assess the affordability of deductions under an automated process.
LITRG calls for human review and correct checks
Sarah Weston, Technical Officer at LITRG, said: "We recognise that HMRC are trying to reduce the overall amount of unpaid tax and it is reasonable for HMRC to pursue people for tax that is genuinely due."
She added: "We are pleased that HMRC has taken on board and addressed some of the concerns we raised during the consultation on this proposal. In particular, allowing a longer notice period before debts are recovered, stronger protections for joint account holders, and a 'refund first' approach in cases where there is dispute over the deduction, are all welcome. However, important questions remain about how these safeguards will work in practice. Getting the detail right will be essential.
"Not responding to HMRC does not necessarily mean someone is unwilling to pay. HMRC must explain how they will identify people who need extra support and ensure their cases are removed from the automated process for human review. They must also check that debts are correct before making deductions.
"Money in a bank account could be needed for essential bills. Although additional data and third-party evidence might help HMRC assess taxpayer vulnerability and affordability, they may not tell the whole story.
"Safeguards must ensure that powers are used appropriately and deductions do not leave people struggling to meet day-to-day living costs."
HMRC outlines safeguards and next steps
HMRC says it will develop a Code of Practice in consultation with stakeholders, with a first draft and draft legislation expected in summer 2027. In its consultation response, HMRC said safeguards are central to the policy, including assessing each customer's affordability before deductions begin, removing customers who need extra support for manual review by a trained HMRC officer, stopping the process where a customer contacts HMRC to manage their debt at any point, giving customers advance notice and a clear opportunity to contact HMRC before deductions begin, maintaining access to complaints, appeal and redress arrangements, and operating a 'refund first' policy where a taxpayer claims a payment has been taken in error.
HMRC added: "HMRC will continue working with deposit takers, tax and debt advisers, representative bodies and other stakeholders on the detailed design of the policy. This will include co-designing a Code of Practice covering how the policy will operate its safeguards and customer protections. The government intends to publish a first draft of the Code of Practice and draft legislation for technical consultation in Summer 2027. A test and learn phase is planned before wider implementation, followed by a phased rollout beginning with companies and then individuals."
