HMRC reinstates direct recovery of debt from bank accounts

Sara White, Editor, Business & Accountancy Daily - Croner-i

Following a four-year hiatus, HMRC plans to start collecting tax debts directly from bank accounts again under rarely used direct recovery of debts (DRD) rules.

HMRC has re-started the use of direct recovery of debts (DRD) for individuals and businesses who do not pay the tax they owe. HMRC paused the use of DRD during the pandemic and has now returned to using this method in a ‘test and learn’ phase.

However, DRD was not even used very much before covid struck in 2020, with only an average of 10 uses in a single year, and kicks in for debt over £1,000.

‘Direct Recovery of Debts (DRD) is used when an individual or business can afford to pay what they owe but are choosing not to,’ HMRC said. ‘These powers are an effective incentive to pay and were used only 19 times in two years, before pausing during the pandemic.’

Under DRD, HMRC can recover money owed by tax non-payers by asking banks and building societies to pay directly from a debtor’s account, and/or funds held in cash ISAs. It can be used where debtors owe £1,000 or more, subject to safeguards.

HMRC will only take action against those who have passed the timetable for appeals and have repeatedly ignored attempts to make contact.

Before debts are considered for recovery through DRD, every debtor will receive a face-to-face visit from HMRC agents to personally identify the taxpayer to confirm it is their debt and to discuss options to resolve the debt, including through time to pay arrangements, which can spread repayments over an agreed timeframe.

Dawn Register, a tax dispute resolution partner at BDO said: ‘Given the pressure on public finances, it’s clear that HMRC is determined to get tougher on those who can pay but don’t pay.

‘The relaunch of this draconian power underlines how important it is not to stick your head in the sand and ignore HMRC demands.

‘HMRC needs to strike the right balance between supporting businesses and individuals in genuine financial difficulty, while being assertive with those who can afford to pay but choose not to.

‘There will undoubtedly be practical challenges for HMRC in using these powers but we hope that the safeguards in place will prevent HMRC from overstepping the mark.’

The government announced the return of DRD in the Spring Statement in March 2025. It has also given HMRC an additional £630m to invest in debt recovery teams, with plans to hire 2,400 new debt collection staff, which is already underway. This is projected to recover £11bn in debt by the end of 2030.