The UK tax authority is set to expand its powers to automatically recover tax debts directly from bank accounts, including those owing as little as one penny. Currently, HM Revenue and Customs (HMRC) can seize funds from accounts for debts exceeding £1,000 under its “direct recovery powers,” which were introduced in 2015 but temporarily paused during the COVID-19 pandemic. These powers were reinstated last year by the Labour government.

Under existing rules, when reclaiming tax arrears over £1,000, taxpayers must retain at least £5,000 in their bank accounts after deductions. However, the new proposals aim to extend recovery capabilities to “high volumes” of lower-value debts—defined as amounts up to £5,000—potentially affecting around 250,000 individuals and businesses. Unlike the current safeguards, the government has not formally committed to a minimum balance rule for these smaller debts, though HMRC is reportedly considering limiting repayments to no more than 50 percent of a debtor’s disposable income.

HMRC stated that over 750,000 lower-value debts, collectively exceeding £2 billion, remain unpaid nine months after formal attempts to collect, despite multiple contact efforts. The agency plans to introduce monthly repayment plans for affected taxpayers and allows individuals to discuss alternative arrangements even after deductions begin. Public consultation on the new measures will remain open until August 28.

The move has drawn criticism from tax experts and advocacy groups who warn the approach may be disproportionate and risk errors that could harm vulnerable taxpayers. Nimesh Shah of tax firm Blick Rothenberg expressed concern that HMRC may employ a “sledgehammer” tactic without sufficient safeguards and cautioned about cases where incorrect tax assessments lead to improper deductions. Victoria Todd of the Low Incomes Tax Reform Group highlighted worries that no minimum balance requirement for smaller debts could leave low-income taxpayers unable to cover essential expenses. Both called for careful measures to distinguish between genuine vulnerability and non-compliance.

The proposals form part of the government’s ongoing efforts to reduce the UK’s significant tax gap—the difference between expected and collected tax revenue—which reached £59.2 billion in 2024-25, up from £46.8 billion the previous year. A 2019 review found that direct recovery powers had generated an additional £178 million in revenue.

Separately, ministers announced plans to extend similar powers to recover debts directly from benefits claimants’ accounts starting October, aiming to address fraud within the welfare system. Authorities will also seek court permission to revoke driving licenses of debtors owing at least £1,000.

Exchequer Secretary to the Treasury Dan Tomlinson emphasized the importance of fairness in the tax system, stating that the vast majority of taxpayers pay on time and that these extended powers target those who can pay but fail to do so, while support remains available for those needing assistance.