HMRC Resumes Direct Recovery of Debts Could This Affect Your Bank Account

The UK tax authority, HM Revenue and Customs (HMRC), has restarted its programme to recover unpaid taxes directly from debtors' bank accounts. This move, paused during the Covid-19 pandemic, is now back in a "test and learn" phase. If you owe tax debts of £1,000 or more, this change could have a direct impact on your finances. Understanding how this policy works and what safeguards are in place can help you avoid unexpected withdrawals and manage your tax obligations better.

What Is the Direct Recovery of Debts (DRD) Policy?

The Direct Recovery of Debts (DRD) policy allows HMRC to instruct banks and building societies to transfer money directly from a debtor’s account to settle outstanding tax debts. This power targets individuals and businesses who have the means to pay but have deliberately avoided doing so.

The policy applies only to debts of £1,000 or more. HMRC emphasizes that this is not a tool for those struggling financially but for those who have ignored repeated attempts to resolve their debts.

How Does HMRC Decide to Use DRD?

Before HMRC takes any money from a bank account, they follow a strict process:

• Face-to-face visit: HMRC agents visit the debtor to confirm their identity and discuss the debt. This personal contact ensures the right person is targeted and offers a chance to explore payment options.

• Debt verification: Only debts that have been confirmed and are beyond the appeal period qualify for direct recovery.

• Repeated contact attempts: HMRC must have made several attempts to contact the debtor through letters, calls, or visits.

• Affordability check: HMRC assesses whether the debtor has the means to pay but has chosen not to.

  
  

This process aims to avoid mistakes and ensure that only those deliberately avoiding payment are affected.

Safeguards to Protect Debtors

HMRC has built-in safeguards to prevent undue hardship:

• Minimum balance protection: HMRC will leave at least £5,000 in the debtor’s bank accounts. This amount is intended to cover essential expenses such as wages, mortgage payments, and household bills.

• Vulnerable customers: Special consideration is given to vulnerable individuals to avoid causing financial distress.

• Debt threshold: Only debts of £1,000 or more are targeted, so smaller debts are not subject to direct recovery.

• Appeal rights: Debtors who are still within their appeal window or have unresolved disputes are not subject to DRD.

  
  

These measures aim to balance HMRC’s need to collect owed taxes with fairness and financial stability for taxpayers.

Who Is Most Likely to Be Affected?

HMRC states that most taxpayers pay their taxes fully and on time. The DRD policy focuses on a minority who have the ability to pay but choose not to. Examples include:

• Businesses that have ignored repeated payment requests despite having sufficient funds.

• Individuals with significant bank balances who have not responded to HMRC’s contact attempts.

• Taxpayers who have exhausted other payment options and failed to set up instalment plans.

  
  

If you fall into these categories, it is crucial to engage with HMRC early to avoid direct recovery actions.

What Can You Do If You Owe HMRC?

If you have outstanding tax debts, consider these steps to avoid direct recovery:

• Contact HMRC promptly: Respond to letters or calls to discuss your situation.

• Set up a payment plan: HMRC offers instalment arrangements that can prevent aggressive recovery actions.

• Seek professional advice: Tax advisors or debt specialists can help negotiate with HMRC.

• Keep records: Maintain documentation of all communications and payments.

  
  

Taking proactive steps can prevent HMRC from using the DRD policy against you.

What This Means for Your Bank Account

The resumption of DRD means HMRC can withdraw money from your bank account without prior warning if you meet the criteria. This can cause unexpected cash flow problems, especially for businesses relying on daily transactions.

Remember, HMRC will not empty your account but will leave a minimum balance to cover essentials. Still, it is wise to monitor your account closely and keep communication lines open with HMRC.

The return of HMRC’s direct recovery programme signals a tougher stance on unpaid taxes. If you owe money and have ignored HMRC’s attempts to contact you, your bank account could be affected. The best approach is to stay informed, respond quickly, and seek help if needed. Managing your tax debts responsibly can protect your finances and avoid the stress of unexpected withdrawals.