HM Revenue & Customs (HMRC) is considering new proposals that would allow the tax authority to seize smaller amounts of debt directly from individuals' bank accounts. Currently, HMRC can access bank accounts to recover tax debts exceeding £1,000, provided the individual would still retain at least £5,000 after the debt is collected. The proposed changes would eliminate this £5,000 buffer and permit the collection of lower-value debts in installments.
The Treasury has not specified the exact threshold for these lower-value debts, stating that details will be determined through an upcoming consultation. Dan Tomlinson, exchequer secretary to the Treasury, emphasized that the measures aim to ensure fairness for taxpayers who pay on time and in full, by recovering funds from those who can afford to pay but refuse to do so. He added that support would continue to be offered to individuals seeking assistance with their payments.
However, tax experts have raised concerns about the potential impact of removing the minimum balance protection. Rachael Griffin, a tax and financial planning expert at Quilter, described the removal of the buffer as a "notable concern," warning that even modest deductions could disrupt essential spending for households with tight budgets, particularly if liabilities are disputed or incorrectly assessed. She highlighted the critical need for robust checks and clear protections for vulnerable individuals.
The consultation, launched on Tuesday, aims to gather feedback on collecting tax debt from individuals deemed capable of paying but unwilling to do so. HMRC stated that "robust safeguards" will be implemented to protect financially vulnerable people, and the consultation will define what constitutes a "low-value" debt for collection purposes. The tax authority also indicated that these powers would only be exercised after attempting to contact the individual about their debt at least 10 times.
According to reports, up to 250,000 taxpayers owing £5,000 or less could be affected by these proposed changes. Tax experts have cautioned that small debts can sometimes arise from errors or misunderstandings rather than deliberate tax evasion. Without a minimum balance protection, such measures could potentially lead to genuine financial strain for some taxpayers.
These proposals are part of HMRC's ongoing efforts to reduce the tax gap, which is the difference between the amount of tax owed and the amount collected. The tax gap was estimated at approximately £60 billion for the 2024-2025 fiscal year, an increase from £46.8 billion the previous year. HMRC is seeking to enhance its debt collection capabilities to address this widening gap.