HMRC restarts taking tax debts directly from bank accounts

HMRC has restarted using its power to take unpaid tax directly from taxpayers' bank accounts and cash Isas, Which? reported on 2 October 2025. The practice, known as Direct Recovery of Debts (DRD), was suspended during the pandemic and is now running in a "test and learn" phase¹.

DRD was first introduced by the Finance Act 2015 and began operating from April 2016¹. It requires banks and building societies to pay HMRC unpaid tax directly from an account when a person or business can afford to pay but chooses not to¹. The power can be applied when the tax owed is more than £1,000, and it primarily affects self-assessment taxpayers, businesses, and individuals with significant income from investments, second properties and savings interest¹.

The government confirmed the restart earlier this year in the Spring Statement, as part of plans to collect £11bn more in unpaid tax by the end of 2030¹. 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 action¹.

HMRC 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 receives a face-to-face visit from HMRC, where the department explains other options for resolving the debt and assesses whether the person could be considered vulnerable¹. If they are, the DRD is halted and extra support is provided¹.

If the process goes ahead, HMRC contacts the bank or savings provider to check there are funds to pay the tax bill¹. HMRC has confirmed 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 taxpayer is first notified that the payment is "on hold", then contacted again to confirm the date the money will be taken¹. If no objection or appeal is made within 30 days, the tax debt payment is automatically taken from the account¹.

Taxpayers can object to a DRD by sending a formal objection to HMRC or filing an appeal with the County Court¹. Grounds for objection include having already paid the debt in full or in part, disputing the amount owed, financial hardship caused by the DRD action, or a third party having a stake in the affected accounts¹.

Why it matters for households

The restart affects people with unpaid tax debts above £1,000 who have not responded to HMRC contact, primarily self-assessment taxpayers, businesses, and those with significant income from investments, second properties and savings interest¹. Money can be taken from bank accounts and cash Isas, but at least £5,000 must remain in the account¹. The 30-day window between notification and payment gives taxpayers the chance to object or appeal before funds are taken¹.

Separately, filing a tax return late triggers an immediate £100 penalty, even where no tax is owed¹. Failing to submit within three months brings a £10 daily charge 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 debts over time¹.

For those who cannot pay, HMRC offers "time to pay" arrangements, formal agreements to pay in monthly instalments or with extra time¹. Where £30,000 or less is owed for self-assessment and the taxpayer is within 60 days of the payment deadline, a payment plan may be set up online through a Government Gateway account; larger debts, missed deadlines or inability to use the online service require a call to HMRC's payment support line¹. Time to pay agreements are granted case by case¹.

What happens next

The DRD power is operating in a "test and learn" phase, with no end date reported¹. HMRC has not said how many cases will be pursued or when the phase will conclude; those details have not been reported¹.