The vast majority of taxpayers meet their obligations – paying their tax in full and on time. However, a small minority choose not to pay, even though they have the means to do so.
To ensure fairness for everyone, HMRC has the power to recover unpaid tax directly from businesses’ or individuals’ bank accounts in certain cases.
This is known as Direct Recovery of Debts (DRD).
DRD was first introduced in 2015 and up to now, the powers have been used very sparingly – there were only 19 deductions totalling £361,678 between April 2016 and December 2018, and activity was paused completely during the COVID-19 pandemic.
However, in the Spring Statement 2025, the government announced that HMRC would restart the use of DRD and it has recently resumed DRD activity under a “test and learn phase.”
Restarting the process forms part of wider efforts to reduce overall tax debt levels.
The renewed use of DRD by HMRC needn’t be cause for alarm for the majority as it is targeted only at those who can pay but refuse to.
Below is a brief overview of DRD and what you need to know. If you need advice, get in touch via our website.
How does DRD work?
Under DRD, HMRC can require banks or building societies to transfer funds directly from a debtor’s account to cover outstanding tax liabilities. This may include cash ISAs and applies to debts of £1,000 or more.
DRD doesn’t give HMRC power to recover taxes from bank accounts freely – it is used only after other recovery methods have failed, and there are strict conditions which must be met.
What are the safeguards or protections?
HMRC has set out a range of safeguards to ensure the process is fair and proportionate. These include:
- Action only after due process: DRD applies only to established debts where appeal rights have expired and where multiple contact attempts have been ignored.
- Face-to-face visit: Every debtor will receive an in-person visit from an HMRC agent before DRD is considered. This meeting confirms the taxpayer’s identity, explains the debt, and offers an opportunity to discuss repayment options including a Time to Pay arrangement.
- Support for vulnerable taxpayers: If an individual is identified as vulnerable, they are removed from the DRD process and referred to HMRC’s extra support team.
- Financial protection: HMRC will always leave at least £5,000 in a debtor’s account to ensure essential personal or business expenses can still be met.
- Right to object or appeal:
- Debtors have a 30-day window to object once recovery is initiated.
- No funds are transferred until the objection process is complete.
- Debtors can appeal HMRC’s decision to a county court, including on grounds of hardship or third-party rights.
- Transparency and oversight: HMRC Commissioners oversee the use of DRD, and statistics on its application and appeals will be published.
What does this mean for taxpayers?
For most compliant taxpayers, this announcement will have no impact. However, those with outstanding tax debts should be aware that HMRC is once again able to recover funds directly if other engagement efforts fail.
Final thoughts
The worst thing to do if you are struggling with HMRC debts is to bury your head in the sand. HMRC recognises that many people and businesses face genuine financial difficulties. Unexpected life events, health issues, or business problems can all affect the ability to pay tax on time.
If you or your business has unpaid tax or are struggling to meet your obligations, it’s essential to engage with HMRC early. In many cases, a Time to Pay arrangement or other resolution can be agreed, avoiding enforcement action altogether. Time to Pay arrangements are flexible payment plans that help taxpayers spread the cost of their liabilities and HMRC reports that 9 out of 10 of these agreements are successfully completed.
If you’re concerned about tax arrears or have received a notice from HMRC, our team can help you.
Contact us at enquiries@cowgills.co.uk for confidential advice on managing HMRC debts.
