HMRC Targets Persistent Tax Debts with New Recovery Powers

HMRC proposes tougher action on persistent tax debts

HMRC is reviewing plans to introduce new powers aimed at recovering long-standing tax debts from individuals and businesses that repeatedly fail to engage with collection efforts.

If implemented, the proposals would allow HMRC to recover certain unpaid tax liabilities through affordable monthly deductions taken directly from a taxpayer's UK bank or building society account. The move is designed to tackle lower-value tax debts that remain unresolved after all standard collection methods have been exhausted.

What is being proposed?

According to HMRC, more than 750,000 lower-value tax debts, worth over £2 billion collectively, remain unpaid each year despite repeated attempts to secure payment.

Under the proposed framework:

• Direct monthly deductions could be made from UK bank and building society accounts.
• The maximum debt recoverable under the scheme would be £5,000 for individuals and £10,000 for businesses.
• HMRC would only use the powers after existing debt collection procedures have failed.
• Taxpayers would receive a formal Pre-Deduction Notice (PDN) before any action is taken.

The proposal forms part of HMRC's ongoing efforts to improve tax debt recovery while reducing the cost of enforcement.

Safeguards for taxpayers

HMRC has stressed that the powers would not be used without prior warning. Before deductions could begin, affected taxpayers would have the opportunity to:

• Pay the outstanding debt in full.
• Contact HMRC to discuss their circumstances.
• Arrange a Time to Pay agreement.
• Challenge or formally object to the proposed action.

The government has suggested a 14-day notice period following the issue of a Pre-Deduction Notice, although professional bodies and advisers have argued that a longer period of at least 30 days would be more appropriate.

Importantly, HMRC has also proposed safeguards for vulnerable taxpayers. These include affordability assessments and additional reviews where financial hardship or support needs have been identified.

What does this mean for businesses?

For business owners, the proposals highlight the increasing importance of proactive tax management. While the new powers are aimed at persistent non-engagement rather than businesses facing genuine cash flow challenges, companies with overdue tax liabilities should ensure they communicate with HMRC at the earliest opportunity.

Businesses struggling with corporation tax, VAT, PAYE or self-assessment liabilities often have more options available than they realise, particularly if issues are addressed before they escalate.

How can Charlton Baker help?

Managing tax obligations can be challenging, particularly during periods of growth, uncertainty or cash flow pressure. Our experienced tax advisers work closely with businesses and individuals to help them stay compliant, manage liabilities effectively and negotiate with HMRC where necessary. Call our expert team now on 01380 723692 or email here.