HMRC Bank Account Powers Target £950 Debts, Not the £59bn Tax Gap

£950. That is the average debt, for an individual, in the pile of small tax debts the new power is built to clear. The government’s own consultation paper puts the figure at “around £950” for debts below £5,000, and about 4.8 million people and companies hold debts at or below the £5,000 and £10,000 lines — some 11.5 million debts worth around £4 billion in total. The power announced in the Budget is not aimed at the big end of the system. It is aimed at the small end, where the average bill is under a thousand pounds.

The Budget sells it differently. John Healey told the Commons the government was giving HMRC “stronger powers to collect overdue tax from those who can clearly afford to pay, but ignore repeated contact”. The measure sits in a Budget presented as a strike against a tax gap of £59.2 billion — the difference between the tax HMRC should collect and what it does, 6.4 per cent of what is owed in 2024-25. The red book’s own costings table gives the power’s yield: nothing for three years, then £50 million in 2029-30, £255 million the year after, £320 million in 2031-32. At maturity, that is 0.54 per cent of one year’s gap. In its first year it is 0.08 per cent.

What changes in 2029 is the method. Under the HMRC bank account power, a bank can be instructed to take regular instalments from the account of someone who can pay but repeatedly fails to do so. The debts in scope are capped at £5,000 for individuals and £10,000 for companies, interest and penalties included. There is no minimum debt level: the government’s response to its own consultation says it “would not use the policy for very small debts where action would be disproportionate”, but sets no floor. There is no minimum balance to be left in the account either: “The government does not currently think that a minimum account balance is a necessary safeguard.” And the method for deciding whether a deduction is affordable does not exist yet. The government “has decided not to prescribe a final affordability methodology at this stage”.

The power it replaces has floors. Direct Recovery of Debts, in force since November 2015 under Schedule 8 to the Finance (No. 2) Act 2015, takes money only where the debt is at least £1,000, only after a face-to-face visit, and only if at least £5,000 is left across the debtor’s accounts. The debtor gets a hold notice and 30 days to object, and nothing moves until the objection and appeal periods end. Between 2015 and 2018 it was used 19 times, recovering £361,678. It was paused during the pandemic and relaunched in a test-and-learn phase after the Spring Statement. Joint accounts already fall inside it, on a default assumption that each holder owns half the balance. The new power keeps the HMRC joint account reach — the government says it would “only consider joint accounts if there was no viable sole account”. It drops both floors: the £1,000 minimum debt and the HMRC £5,000 minimum balance.

The old power, with its floors intact, has already taken money from a man it never told he owed anything. Simon Evans, 70, a tax lawyer from Northamptonshire, found out HMRC had taken £2,300 from his account only when the letter arrived after the deduction. “There wasn’t a dispute, we’d never heard from HMRC, nor had our accountant,” he said. The letters had gone to an old London address, though Companies House and his tax returns carried the right one. His wife spent an hour and a half on hold, was cut off, then waited 45 minutes. Three weeks later another letter threatened a further £4,000. Six hundred pounds of the sum was interest on tax he had never been told about. He paid and gave up the dispute. “We’re both lawyers, we’re well equipped to deal with this… But there will be many people that do not have the knowledge or finances to deal with this. It’s iniquitous.”

u/AlchemyFire waited nearly eight months of weekly calls and emails for a refund HMRC owed him. The next year, he was told he owed money after all: “they’ve come back to me, told me that they screwed up, and I actually owe more.” The replies on Reddit’s r/ukpolitics, where the Budget announcement was argued over for days, run the same way. u/Sea-Frosting-50 put the objection in one line: “I dont like the idea of government being able to access my account directly. its a one way, irreversible action that will stay forever.” u/99PercentApe saw the targeting as the point: “Easy to go for the little people who are not tying yo hide anything. While the business owners, offshore domiciled, and those who obscure their finances get off free. It’s great to be a low hanging fruit, eh.” One voice defended the taxman. u/jake_burger wrote: “HMRC are very fair in my experience. It’s possible they could make a mistake but they usually rectify any overpayments.”

The official line answers the first two worries and sidesteps the third. HMRC says it does not take money “without warning” and acts only after “repeated attempts to contact customers who have the money to pay but refuse to engage”. The consultation’s terms back that up on paper. Deductions start only after standard collection is exhausted — typically ten contacts and a debt nine months old — with 28 days’ notice and a “refund first” rule that returns the disputed amount while HMRC reviews an objection. But the people who do not engage are not always the people who can pay. The Low Incomes Tax Reform Group warns non-engagement “may reflect financial hardship, vulnerability or difficulties accessing support, rather than an unwillingness to pay”. It adds that “automated affordability assessments may not reflect taxpayers’ actual financial circumstances”. And the targeting is the part the numbers confirm. Every year more than 750,000 lower-value debts worth over £2 billion are returned to HMRC by debt collection agencies unpaid. The new power’s best year recovers £320 million — about a sixth of that pool, half a percent of the gap. Andrew Griffith, the shadow chancellor, called it “absurd” that the state could “empty your bank account over a few hundred pounds and leave you with nothing to pay the rent”. The numbers say the sums involved, where deductions happen, will mostly be in the hundreds.

The debt the power is aimed at is, in large part, debt that will never be paid at all. The National Audit Office reported five days before the Budget that £43.8 billion was owed at the end of 2025-26 by 8.2 million taxpayers. £103.6 billion of new tax debt arose in the year — about twice the pre-pandemic annual average — and HMRC itself estimates 46 per cent of the balance may not be paid. £12.9 billion is not expected to be collected, up from £4.2 billion in 2019-20. Against that, the Budget’s answer is the new power plus £70 million over five years for private-sector debt collection agencies and 670 more compliance officers. For every £1 HMRC spent on debt-management staff last year, it collected £350.

HMRC expects fewer than 250,000 deduction plans a year once the power is running. Tax Credits debts stay outside it; Child Benefit debt is inside it.