HMRC has launched a consultation on controversial proposals to extend its powers to recover smaller outstanding tax debts by making direct deductions from taxpayers' bank accounts. The move has sparked serious concerns among tax experts, who warn that the taxman could potentially pursue debts as minimal as 1p, as the consultation currently does not specify a minimum debt threshold.
Expansion of Existing Powers
The proposals expand upon the existing Direct Recovery of Debt powers, which already allow HMRC to collect lump sums from accounts of those who refuse to pay and ignore attempts to engage. Currently, these powers apply only where a taxpayer owes at least £1,000, with protections ensuring debtors retain at least £5,000 across their accounts.
Under the new plans, ministers propose broadening debt recovery to cover lower-value debts through regular deductions from bank accounts for taxpayers who persistently fail to engage with HMRC. The Government states that more than 750,000 such debts, worth over £2 billion, remain outstanding each year despite more than nine months passing and at least 10 contact attempts.
Concerns from Tax Professionals
Tax professionals have voiced alarm. Nimesh Shah, chief executive of tax advisory firm Blick Rothenberg, described the plans as a potentially 'sledgehammer' approach to debt collection. He told the Telegraph there was a danger HMRC could seize funds that were not genuinely owed if assessments turned out to be incorrect. Others raised questions about whether automatic deductions might leave struggling families facing additional financial difficulties.
Victoria Todd, head of the Low Incomes Tax Reform Group, said her organisation was troubled that the proposals currently lack provisions for a minimum amount that must remain in a taxpayer's bank account. She cautioned that people managing tight budgets could find it difficult to cover essential living expenses if deductions were implemented without sufficient safeguards.
Government's Rationale
The controversy emerges as ministers intensify attempts to address Britain's tax debt burden and reduce the so-called tax gap. According to HMRC, tax debt reached £44 billion at the close of the 2024-25 financial year, while the Government is investing substantially in enhanced debt collection and compliance operations.
HMRC firmly rejects claims that it will start raiding bank accounts over trivial amounts. A spokesman 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 emphasises that the measures would only be implemented following repeated attempts to reach taxpayers, targeting people who are financially capable of settling their debts but have neglected to do so. HMRC confirms that customers would receive advance notice before any deductions commenced, and would retain the option to contact the department to arrange alternative payment plans.
Ministerial Statement
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 period runs until August 28, with ministers inviting opinions on how the powers should function and what protective measures ought to be established. The full consultation, including all proposals, is available to view online.
