Direct recovery from bank accounts is back, and a new consultation could widen HMRC’s reach even further.
HMRC is directing more of its resources towards long-overdue tax debts, including smaller balances that have gone unanswered. For business owners the message is a simple one: engage in conversation with HMRC early. Debts that might once have sat quietly on an account for months are now more likely to move quickly from a reminder letter to formal enforcement, and HMRC has brought back one of its more powerful collection tools to help it get there.
Here is what has changed, what HMRC can and can’t do, along with the practical steps worth taking now.
A firmer approach to overdue balances
HMRC has signalled that it is putting more effort into pursuing established debts where a taxpayer has had little or no engagement after earlier contact. In practice this means cases can be escalated from informal reminders to formal action by HMRC’s Debt Management team more quickly than before, drawing on the full range of collection powers already available to it.
Those powers include coding out underpayments through PAYE (for income tax or self-assessment liabilities), taking control of goods, county court proceedings and, in the most serious cases, insolvency action. Alongside these sits the tool that has attracted most attention: direct recovery of debts.
Direct recovery
Direct recovery of debts (DRD) allows HMRC to instruct a bank or building society to pay tax owed directly from a taxpayer’s account, including cash ISAs. It was paused during the pandemic. In September 2025 HMRC restarted DRD in a controlled ‘test and learn’ phase, with a wider rollout planned from April 2026.
The power is not used lightly, and only applies where strict conditions are met:
- The debt is £1,000 or more
- The debt is established and the time limit for any appeal has passed
- The taxpayer has repeatedly ignored HMRC’s attempts to make contact
- At least £5,000 is left across all of the taxpayer’s accounts (the idea behind this being that funds for wages, mortgages and essential costs is protected.
Before any funds are taken, HMRC must visit the taxpayer face to face to confirm the position, discuss options such as a time to pay arrangement, and check for signs of vulnerability. Anyone identified as needing extra support is removed from the DRD process and referred to HMRC’s specialist support team.
The safeguards that apply
If HMRC does proceed, several protections are built in. When direct recovery is initiated, the relevant funds are effectively frozen for thirty days, during which the taxpayer can lodge an objection. There is also a right of appeal to the county court on limited grounds, such as genuine hardship or where a third party has a claim on the money (this might apply, for example, to funds in a joint account).
These protections sit within the wider self-assessment and appeals framework, which generally allows thirty days to challenge an assessment or decision. Missing that window is often what turns a disputable figure into an enforceable debt, so timing matters.
A consultation that could widen the net
The operational shift is happening against the backdrop of the government’s wider work on HMRC’s powers and tax administration. Most relevant for smaller businesses is a live consultation entitled ‘tackling lower value tax debts’, published on 23rd June 2026 and open until 28th August 2026.
The consultation proposes extending the direct recovery power so that HMRC could collect smaller debts, up to £5,000 for individuals and £10,000 for businesses, by deducting affordable monthly instalments directly from a UK bank or building society account, rather than as a single lump sum. It would apply to a taxpayer’s total debts across all taxes and would only be used after HMRC’s standard collection routes had been exhausted and the taxpayer had been given a final opportunity to pay or make contact. HMRC has indicated it may again phase this in through a ‘test and learn’ approach.
Nothing here is law yet, but the direction of travel is clear. The way tools such as DRD are being used now is likely to shape the debate, and any business owner or adviser with a view on the proposals in the consultation document has until the August deadline to respond.
What business owners should do now
None of this is cause for alarm for owners who stay on top of their obligations. The taxpayers most at risk are those who stop responding. A few straightforward steps will substantially reduce the chance of unexpected enforcement.
- Review outstanding balances across all taxes, so that nothing is overlooked, including smaller sums.
- Keep your contact details up to date with HMRC, so letters and visits reach the right place, and you are not caught out by correspondence you never saw.
- Engage promptly whenever a debt arises. If you cannot pay in full, a time to pay arrangement is far preferable to enforcement and is usually available to those who ask early.
- Challenge disputed figures within the deadline, normally thirty days, rather than leaving an assessment to become final.
The common thread in all of the above is ‘engagement’. HMRC’s tougher stance is aimed squarely at debts that have been ignored, and its own safeguards are built around giving people a chance to put things right first. Taking that chance early keeps you in control of the outcome.
How eba can help
If you have overdue tax, an assessment you want to challenge, or you are simply unsure where you stand, eba can help you review your position, deal with HMRC and, where needed, negotiate a manageable time to pay arrangement before matters escalate. So, if this applies to you, or if you’re worried about any of it, get in touch with the team to talk it through.
