Sep 10

2026

HMRC could deduct smaller tax debts from bank accounts: what businesses need to know

HMRC is considering a new way to recover lower-value tax debts directly from bank and building society accounts through regular monthly deductions. The proposal is aimed at businesses and individuals who can afford to pay but have persistently failed to engage with HMRC.

The consultation closed on 28 August 2026. No new power has yet taken effect, and the government has said a summary of responses will be published later in 2026. The proposal is not simply a reduction in the threshold for HMRC’s existing Direct Recovery of Debts power. Instead, it is intended to create a more automated process for lower-value debts, with HMRC currently expecting total debts in scope to be no more than £10,000 for companies and £5,000 for individuals.

HMRC has already restarted its existing Direct Recovery of Debts, or DRD, power after pausing its use during the COVID-19 pandemic. A controlled “test and learn” phase began in September 2025, followed by wider use from April 2026.

What HMRC can already do

The existing DRD rules apply only where more than £1,000 is owed and HMRC must leave at least £5,000 available across the customer’s accounts. The current process also gives the taxpayer 30 days to object after funds have been placed on hold and before money is transferred to HMRC.

Under the proposed system, HMRC is considering a 14-day notice before the first instalment and allowing objections throughout the repayment period. Monthly deductions would be set according to an affordability assessment rather than relying on a guaranteed £5,000 protected balance.

Why this matters even before anything changes

HMRC’s analysis indicates that around 4.8 million individuals and companies have debts at or below £5,000 for individuals and £10,000 for companies. Together, these represent approximately 11.5 million debts worth around £4 billion.

HMRC also says that more than 750,000 lower-value debts worth over £2 billion remain unresolved each year after nine months and more than 10 attempts to contact the customer. The proposed system is specifically designed for customers who can pay but repeatedly choose not to engage.

That makes the response to HMRC’s first correspondence important, just as it is in what your finance team should do first when HMRC opens a compliance check.

The existing DRD power was used only 19 times during its first two years before being paused during the pandemic. Its gradual restart reflects HMRC’s wider move towards more active debt collection, while retaining support such as Time to Pay for businesses and individuals experiencing genuine difficulty.

The safeguards that currently exist

Existing DRD cannot simply be applied without warning. HMRC must have an established debt where normal appeal deadlines have passed and the customer has repeatedly ignored attempts at contact.

Every individual considered for DRD must receive a face-to-face HMRC visit before the power is used. During that meeting HMRC confirms the debt, discusses payment options and considers whether the individual requires extra support. Since the current restart, companies and limited liability partnerships do not usually receive the same mandatory face-to-face visit, although they must still receive multiple opportunities to resolve the debt before HMRC approaches their bank.

Joint accounts also have specific protections. Existing DRD is limited to the debtor’s proportion of the account, and joint account holders have rights to object or appeal.

The proposed lower-value system would use a different affordability model. HMRC is considering information such as its own tax records and potentially credit-reference-agency data to estimate what a customer can afford. If the proposed instalments would not be affordable, the consultation states that the case should instead be considered for another form of resolution.

What businesses should actually do

• Respond to HMRC correspondence promptly. Both the existing and proposed powers focus heavily on persistent non-engagement.
• If a debt cannot genuinely be paid in full, contact HMRC about a Time to Pay arrangement before enforcement escalates. Customers already in an agreed Time to Pay arrangement would be outside the proposed lower-value deduction process.
• Keep VAT, PAYE and Corporation Tax balances reconciled so any disagreement about the amount owed can be identified quickly. This is part of the same financial discipline covered in reliable monthly management accounts.
• If the problem is wider cash-flow pressure rather than a disputed tax figure, address the financial position early. Our business recovery and restructuring team can assess whether the tax debt is part of a broader working-capital or solvency issue.
• Where the amount HMRC is pursuing is genuinely disputed, take advice quickly. The proposed measure would exclude debts subject to an active appeal, enquiry or compliance review.

The position in Ireland

Ireland operates a separate attachment regime under section 1002 of the Taxes Consolidation Act 1997. Revenue can require a third party that owes money to a taxpayer, including a financial institution, to redirect that money towards an outstanding Revenue debt.

For a general attachment, the total tax, interest and penalties must exceed €1,000 and generally have been in default for at least one month. Attachment of wages or salary has stricter requirements: the debt must be at least €10,000, normally have been in default for at least six months and the taxpayer must meet additional conditions.

Businesses operating on both sides of the border should therefore treat the UK and Irish systems separately. Our cross-border accounting and tax specialists can determine which rules and enforcement procedures apply to each liability.

If a debt is already at this stage

A business that has received formal DRD correspondence from HMRC or a Revenue attachment notice should deal with it immediately. Our tax investigation and dispute support team can help establish whether the amount is correct, whether an objection is available and what payment options may be appropriate.

Where tax arrears sit alongside wider financial difficulty, our recovery and restructuring specialists can assess the business’s overall position rather than treating the HMRC or Revenue balance in isolation.

Full details of the proposals remain in HMRC’s consultation on tackling non-compliance and tax debts. Until the government publishes its response and any legislation is introduced, the monthly deduction system remains a proposal rather than an existing HMRC power.

If HMRC or Revenue has contacted you about an outstanding balance, talk to SCC Chartered Accountants before matters escalate. Early engagement gives a business more opportunity to establish the correct liability, agree an affordable solution where appropriate and avoid unnecessary enforcement.