24th October 2026
The Chancellor wants to make it easier for HMRC to recover unpaid tax through automatic bank-account deductions. The proposals raise questions about debt collection, taxpayers' rights and protection for people who are struggling financially.
HM Revenue and Customs already has the power to recover certain unpaid tax debts directly from people's bank and building society accounts. But the government wants to extend that approach, making it easier to collect smaller debts through regular instalments rather than relying on people to respond to letters and payment demands.
The proposals could mark a significant change in how the tax authorities deal with people who owe money but have failed to settle their accounts despite repeated attempts to contact them.
The issue deserves attention because there is a considerable difference between someone who can afford to pay a tax bill but refuses to do so and someone who is struggling financially, has misunderstood a tax calculation or has simply fallen behind with their paperwork.
HMRC already has direct recovery powers
HMRC's Direct Recovery of Debts power was introduced in 2015. It allows the department, subject to strict conditions, to take money from qualifying bank and building society accounts to settle unpaid tax debts.
The existing rules include a minimum qualifying debt of £1,000. HMRC must also leave at least £5,000 available across the person's accounts after the proposed recovery.
The power is not supposed to be used as an immediate response to an overdue bill. HMRC is expected to have made repeated attempts to collect the money through normal channels and to have given the taxpayer notice of the proposed action.
Under the established process, the taxpayer receives advance notification and has 30 days to pay, object or challenge the proposed recovery before the money is taken. Safeguards also apply to matters such as joint accounts and disputes over the debt.
These conditions are designed to ensure that direct recovery is used against people who have the means to pay but have persistently failed to engage with HMRC, rather than becoming a routine method of collecting every outstanding tax bill.
A power that has been used sparingly
Despite being available for more than a decade, the original power was used very infrequently.
Between April 2016 and December 2018, HMRC recovered £361,678 through just 19 cases. The scheme was subsequently suspended during the Covid-19 pandemic and restarted in a controlled testing phase in September 2025, ahead of a wider rollout from April 2026.
Those early figures show that direct recovery was not originally intended to become a mass collection system. The government's argument now is that technology and a more automated approach could make it possible to recover debts that have previously proved uneconomic or difficult to pursue.
The early figures should not, however, be mistaken for a complete picture of current activity. A comparable cumulative total for the restarted scheme is needed to establish how extensively HMRC is now using its existing powers.
Why does the Chancellor want to change the system?
The government's concern is that a large number of relatively small tax debts remain unpaid even after conventional collection methods have been tried.
In a parliamentary answer in June 2026, the Treasury said that more than 750,000 lower-value debts, collectively worth over £2 billion, were being returned to HMRC each year by debt collection agencies after attempts to collect them had failed.
The government estimates that fewer than 250,000 individuals and companies a year would fall within the scope of the proposed extension once fully operational. That is the estimated population potentially covered by the new approach, not the number expected to have money taken from their accounts.
The proposal is to make it easier to recover smaller debts, potentially through monthly instalments. Rather than requiring a single large payment, HMRC could collect an agreed or appropriately assessed amount from a bank account over time.
The government argues that this could improve tax collection, reduce the cost of pursuing debts and encourage people to deal with their tax affairs instead of ignoring repeated correspondence.
The June 2026 consultation envisaged a system aimed at lower-value debts, generally not exceeding £10,000 including interest and penalties. The precise thresholds and final operating arrangements depend on the government's response and any subsequent legislation.
What about people who cannot afford to pay?
This is where the proposals become more contentious.
Someone deliberately avoiding a tax bill despite having sufficient money is in a very different position from a pensioner on a limited income, a self-employed person whose business has suffered a downturn or a household facing rising mortgage, food and energy bills.
An automatic deduction could create serious difficulties if it leaves someone unable to meet essential expenses. Even relatively modest monthly payments can be troublesome when income is irregular or there is little money left at the end of the month.
HMRC says the proposed approach should concentrate on people who repeatedly fail to engage, rather than those who genuinely cannot pay. The consultation considered safeguards such as identifying people who need additional support, referring cases for human review and ensuring that deductions reflect affordability.
However, the detail matters. A person who does not respond to letters is not necessarily someone who is deliberately refusing to pay. They may be unwell, dealing with bereavement, struggling with official paperwork or simply unaware that a problem has arisen.
A fair system must distinguish between deliberate non-payment and genuine inability to pay. It must also provide a straightforward way to correct mistakes before money is removed.
Will taxpayers lose control of their bank accounts?
The proposals should not be interpreted as giving HMRC unrestricted access to people's money.
The existing Direct Recovery of Debts power has defined conditions and safeguards. The proposed extension is intended to widen the circumstances in which tax debts can be collected, not abolish all limits on HMRC's authority.
Nevertheless, automation would make it possible to deal with many more cases. That makes clear rules, accurate records and effective appeals particularly important.
Taxpayers should not assume that every overdue bill will result in money being taken directly from their accounts. But neither should they ignore official correspondence. Anyone who disputes a tax assessment or cannot afford to pay should contact HMRC promptly and explain the circumstances.
HMRC already offers Time to Pay arrangements to eligible taxpayers, allowing them to spread outstanding bills over an agreed period. Seeking such an arrangement is generally preferable to allowing a debt to grow while correspondence goes unanswered.
A question of fairness as well as efficiency
The government has a legitimate interest in collecting tax that is properly due. When people can afford to pay but repeatedly refuse, the cost of chasing them falls on the public purse and compliant taxpayers.
But making collection easier also increases the importance of getting decisions right. An automated system can process thousands of cases quickly, but speed is not the same as fairness.
The government needs to demonstrate that people will receive adequate warning, have a meaningful opportunity to challenge errors and will not be pushed into financial hardship by deductions they cannot reasonably afford.
The consultation on the proposed extension closed on 28 August 2026. The final outcome, including the precise safeguards and any legislative changes, is therefore the next important development to watch.
The question is not simply whether HMRC should be allowed to collect unpaid tax more efficiently. It is whether it can do so while protecting people who are willing to pay but cannot afford to settle their debts immediately. That distinction will determine whether the new approach is seen as a practical improvement in tax collection or as an additional source of anxiety for households already under financial pressure.