Millions of taxpayers could face tougher enforcement as the Government considers giving HMRC wider powers to recover unpaid bills directly from current and savings accounts, prompting warnings that automated deductions could hit people caught in genuine disputes with the taxman.
HM Revenue & Customs could be handed sweeping new powers to take money directly from people’s bank accounts as ministers seek to recover an estimated £4billion in unpaid tax, fines and interest.
The proposed measures, expected to feature in next week’s Budget, would expand the tax authority’s ability to recover debts from individuals and businesses who have repeatedly ignored demands for payment, according to The Times.
Under the reported plans, HMRC would be able to pursue substantially smaller liabilities than those covered by its existing direct recovery powers, potentially reducing the threshold to just a few pounds.
The changes could bring millions more taxpayers within reach of enforcement action, while allowing the tax authority to recover accumulated penalties and interest alongside the original debt.
The proposals would mark a significant expansion of the state’s ability to collect money without first obtaining a court judgment. They have also prompted concerns that automated systems could struggle to distinguish deliberate tax avoidance from administrative mistakes, financial hardship or unresolved disputes.
An estimated 4.8 million people and businesses owe less than £10,000 each, with their combined liabilities amounting to approximately £4billion. For individual taxpayers, the typical outstanding bill is around £950.
Ministers believe existing restrictions have made it difficult and expensive to pursue people who repeatedly ignore payment demands, particularly when the sums involved are relatively small.
Recovering those debts through conventional enforcement channels can be time-consuming and costly, potentially leaving HMRC with little financial incentive to pursue smaller liabilities.
The Treasury’s proposed response is to make recovery more direct, using information about taxpayers’ finances to determine how much they can reasonably afford to repay.
HMRC is understood to be exploring partnerships with credit reference agencies, which could provide information about individuals’ income and expenditure to help calculate affordable repayments.
Earlier proposals suggested deductions could be capped at no more than half of a person’s disposable income. However, the reported changes would place greater responsibility on taxpayers to challenge deductions they believe are wrong.
That prospect has alarmed tax specialists and debt advisers, who warn that a system designed to pursue persistent non-payers could also catch people whose circumstances are more complicated.
Dan Neidle, founder of Tax Policy Associates, said there was a legitimate case for tackling unpaid tax but questioned whether automated enforcement could reliably identify the reasons behind a missed payment.
“I do have concerns that an automated system is going to struggle to distinguish deliberate non-payment from illness or missed correspondence,” he said.
“It would be good to understand the safeguards that will be put in place.”
He added: “There is a real problem with people simply not paying their tax, and the rest of us pick up the bill.”
The Association of Taxation Technicians has also urged HMRC to address shortcomings in its own operations before extending its enforcement powers.
Jon Stride, chair of the organisation’s Technical Steering Group, said there had been cases in which debts were pursued while claims remained unresolved because of delays or errors at the tax authority.
“We have heard of debts being pursued while claims are still outstanding because of HMRC delays or errors, as well as difficulties contacting HMRC to resolve queries,” he said.
Fiona Fernie, a partner at tax firm Blick Rothenberg, warned that disputes between taxpayers and HMRC were often more complicated than a simple failure to pay.
“The more direct and possibly automated the recovery process is, the greater the risk that innocent taxpayers get money deducted from their account before the liability question is fully resolved,” she said.
The political response has been equally sharp.
Shadow Chancellor Andrew Griffith accused Labour of proposing powers that could leave households struggling to meet essential expenses.
He said the plans would allow the taxman “to empty your bank account over a few hundred pounds and leave you with nothing to pay the rent”.
Mr Griffith also branded the reported removal of existing safeguards and the proposed use of credit reference agency data “outrageous”.
HMRC already has a mechanism allowing it to recover certain unpaid debts directly from current and savings accounts. The Direct Recovery of Debts system existed before the Covid-19 pandemic, was suspended during the crisis and has since been reinstated.
Under the existing arrangements, the tax authority must meet specific conditions before recovering money. Once funds are identified, a 30-day objection period applies, during which the money is held by the bank but frozen.
The proposed changes would build on that framework, although the precise scope of any new powers and the safeguards accompanying them remain crucial questions ahead of the Budget.
Debt adviser Claire Cox, who runs the social media page Debt Crisis To Clear UK, has highlighted a key distinction between HMRC and ordinary creditors: the tax authority does not generally need a county court judgment before taking enforcement action under its statutory powers.
That gives the Government a powerful instrument for recovering money owed to the public purse. But it also makes the design of the safeguards particularly important.
The central issue is how to ensure that people who deliberately refuse to pay tax cannot exploit existing limits, without allowing errors, disputed liabilities or sudden financial hardship to trigger unjustified withdrawals.
For ministers, wider recovery powers could help reduce the outstanding tax bill and ensure that compliant taxpayers are not left carrying the cost of persistent non-payment. For households and businesses, the concern is whether a faster, more automated system will offer a fair opportunity to resolve mistakes before money disappears from their accounts.
The Budget will determine whether the Government proceeds with the reported expansion. Until the detailed rules are published, the proposed lower threshold, the extent of any credit-data sharing and the protections available to taxpayers remain matters requiring clarification.
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