Government confirms DRD restart in Spring Statement

The government confirmed the restart of HMRC's Direct Recovery of Debts (DRD) power in the Spring Statement, as part of plans to collect £11bn more in unpaid tax by the end of 2030¹. HMRC has relaunched the power to seize unpaid tax directly from taxpayers' bank accounts and cash Isas, after it was suspended during the pandemic; it is now in a "test and learn" phase¹.

DRD was first introduced by the Finance Act 2015 and started to be used by HMRC from April 2016¹. It requires banks and building societies to pay HMRC unpaid tax straight from an account when a person or business can afford to pay but chooses not to, and can be applied when the tax owed is more than £1,000¹. It primarily affects self-assessment taxpayers, businesses, and individuals with significant income from investments, second properties, and savings interest¹.

The latest figures show £42.8bn in tax owed to HMRC remains unpaid, significantly higher than before the pandemic¹. Between April 2016 and December 2018, DRD was used just 19 times, recovering £361,678 in total, while more than 22,000 taxpayers were considered for DRD action in that period¹.

HMRC states on its website:

HMRC has confirmed that it would always leave at least £5,000 in the account so that it does "not put a hold on money needed to pay wages, mortgages or essential business or household expenses"¹. The tax office says the power will only be applied when the person has "established debts", has passed the timetable for appeals, and has repeatedly ignored HMRC's attempts to make contact¹. Before a debt is considered for DRD, the taxpayer will have a face-to-face visit from HMRC, at which HMRC will explain other options for resolving the debt and assess whether the person could be considered vulnerable; if they are, the DRD is halted and extra support is provided¹. HMRC will then contact the bank or savings provider to check the funds are available, notify the taxpayer that the payment is "on hold", and confirm the date the money will be taken; if no objection or appeal is made within 30 days, the payment is taken automatically¹.

Taxpayers can object to a DRD by sending a formal objection to HMRC or filing an appeal with the County Court, on grounds including that the debt has already been paid, that the amount is disputed, that the action will cause financial hardship, or that a third party has a stake in the affected accounts¹.

Why it matters for households

The power applies to people and businesses with unpaid tax of more than £1,000 who HMRC considers able to pay but unwilling to¹. For those affected, money can be taken from bank accounts and cash Isas without a court order, though at least £5,000 must remain in the account¹. The restart follows the pandemic suspension and forms part of the plan to collect £11bn more in unpaid tax by the end of 2030¹. The £42.8bn currently unpaid is significantly higher than before the pandemic¹. The power has historically been used sparingly: 19 uses between April 2016 and December 2018, recovering £361,678, against more than 22,000 taxpayers considered¹.

Separately, filing a tax return late carries an immediate £100 penalty, even where no tax is due; failing to submit within three months brings £10 per day up to a 90-day maximum of £900, and failing to file after six months brings a £300 penalty or 5% of the tax due, whichever is higher, with the same again after 12 months¹. Interest and late payment penalties are added to unpaid tax the longer it remains outstanding¹. A "time to pay" arrangement is a formal agreement with HMRC to pay a tax bill in instalments or with extra time; where £30,000 or less is owed for self-assessment and the taxpayer is within 60 days of the payment deadline, a plan may be set up online through a Government Gateway account, while larger or overdue debts must go through HMRC's payment support line¹.

What happens next

DRD is operating in a "test and learn" phase following its relaunch¹. No end date for that phase, and no target for the number of cases or sums to be recovered through DRD, have been reported¹.