HMRC's Direct Debt Recovery: What You Need to Know

HMRC has announced the return of its direct debt recovery (DRD) powers. This allows it to dip directly into people’s bank accounts to recover unpaid tax debts. This measure was put on hold during the pandemic, but from 2025, it’s back on the table.

So, what does this mean for businesses and individuals? Should you be worried?

What is Direct Debt Recovery (DRD)?

Direct debt recovery allows HMRC to take money directly from a debtor’s bank account to settle outstanding tax bills. This isn’t a new power. It was first introduced in 2015 but used sparingly. During the pandemic, HMRC paused its use while businesses and individuals were under financial pressure. Now that the economy is stabilising, HMRC is restarting the process.

Who’s at Risk?

Not everyone with unpaid tax is at risk of having their account raided. HMRC has set strict safeguards and criteria. DRD can only be used if:

• The debt is over £1,000.

• HMRC has already sent letters, reminders, and final notices.

• The taxpayer has had a face-to-face visit from HMRC enforcement officers.

• The individual or business is not considered vulnerable (for example, due to age, disability, or financial hardship).

• The debtor has sufficient funds available in the bank.

• Despite all of the above, they still refuse to pay.

  
  

In other words, this is not aimed at taxpayers who are genuinely struggling. It’s aimed at those who can pay but are deliberately choosing not to.

How Will It Work?

If HMRC decides to use DRD against you, they must leave at least £5,000 in your bank account after the debt is collected. This safeguard is in place to ensure you’re not left completely without funds. Before taking the money, HMRC will provide a 14-day notice, giving you one last chance to pay or appeal.

Why Is HMRC Doing This?

HMRC estimates that billions of pounds in unpaid taxes remain outstanding. By using DRD, it believes it can recover money more efficiently from those who have the means but simply avoid paying. It’s worth noting that HMRC rarely used DRD before the pandemic. It’s expected to continue applying it sparingly. However, it’s a sharp reminder that ignoring tax bills is never a safe strategy.

What Should You Do if You Can’t Pay Your Tax Bill?

If you’re struggling with your tax bill, don’t panic. HMRC is far more likely to work with you if you contact them early. Options include:

• Time to Pay (TTP) arrangements – spreading the bill over monthly instalments.

• Appealing penalties if you have a reasonable excuse.

• Negotiating repayment terms that take into account your cash flow.

  
  

The worst thing you can do is ignore the problem. Once HMRC has escalated matters to enforcement, your options narrow considerably.

Our Advice

• Don’t bury your head in the sand. Always open HMRC correspondence and act quickly.

• Talk to your accountant. We can help you negotiate with HMRC, set up a payment plan, and avoid unnecessary penalties.

• Review your cash flow. If tax bills are repeatedly causing strain, it may be time to rethink your financial planning.

  
  

The Importance of Proactive Financial Management

Understanding your tax obligations is crucial. Proactive financial management can prevent issues before they escalate. Regularly reviewing your financial situation helps you stay ahead. It allows you to identify potential tax liabilities early. This way, you can prepare for them and avoid surprises.

Final Thoughts

HMRC’s renewed use of direct debt recovery should serve as a wake-up call. While it’s not aimed at the majority of taxpayers, it highlights the importance of staying on top of your obligations. If you’re worried about your tax bill or struggling to pay, don’t wait until HMRC knocks on your door. Reach out today and let’s find a solution together.

For more information on managing your tax responsibilities effectively, consider visiting Brian Pusser Co Ltd.