Amara Osei

From July 2029, HMRC can automatically deduct tax debts of up to £5,000 from individuals’ current or savings accounts and up to £10,000 from companies, under powers announced by Chancellor John Healey in the Budget.

The regime targets account holders who can pay but refuse to engage with HMRC, after repeated attempts to contact them. It shifts collection toward automatic deductions when taxpayers do not cooperate.

What is the burden-of-proof dispute?

Under existing direct recovery rules, meaning the removal of tax debt directly from a bank account, HMRC can take money only where the debt exceeds £1,000 and at least £5,000 remains in the account. Ministers have linked this high threshold to widespread non-engagement, arguing that some taxpayers ignore HMRC demands when collection appears unlikely.

James Kipping, head of private client at MHA, said: “There should be ‘genuine concern’ over how it concludes the debt amount is correct and final, and how it may ‘distinguish refusal to engage from inability to engage’ from taxpayers.” His objection persists despite HMRC’s proposed protections for vulnerable taxpayers.

Kipping questioned which data HMRC will use to determine income and affordability, and how quickly a taxpayer can halt deductions and recover money if the authority acts incorrectly. He characterised the proposal as something approaching an HMRC-imposed payment plan, with HMRC determining affordability and extracting recurring payments from the taxpayer’s account.

Why is HMRC widening direct recovery?

The tax gap, meaning the difference between tax owed and collected, stood at £59.2bn in the 2024/25 tax year. Pursuing debts can also be lengthy and expensive, which explains the government’s decision to automate collection where taxpayers possess the means to pay.

Government estimates for the new powers are:

• £50m within the first year.
• £255m in 2030/31.
• £320m in 2031/32.

The estimates rise from £50m in the first year to £320m in 2031/32. Even the highest projection remains a fraction of the £59.2bn gap recorded in 2024/25, making the measure a targeted enforcement tool rather than a complete solution.

What safeguards will protect taxpayers?

Rachel Nutt, tax partner at MHA, said most compliant taxpayers were unlikely to be affected. She said success depends on robust safeguards and proportionate use where debts are undisputed and other recovery options have been exhausted.

Nutt also cited disputes where HMRC believed it had sent a notice, although neither the agent nor the client received a copy. Such delivery disputes make the proof and timing of debt notices central to a proportionate recovery process.

A HMRC spokesperson said: “They will only be considered after repeated attempts to contact customers who have the means to pay, but refuse to engage with us. They can contact us at any time to discuss other ways to pay.”

The spokesperson said existing support enables the vast majority to pay without further action. HMRC says the powers will ensure fairness for all taxpayers and remain subject to robust safeguards, including checks that instalments (scheduled payments) are affordable.

How is HMRC targeting LLP tax?

HMRC is also becoming more aggressive toward limited liability partnerships (LLPs), a structure used by the vast majority of law firms and professional services. The authority is actively writing to registered firms as they reassess their members’ tax status after the Supreme Court delivered a landmark ruling in July.

The judgment provided the first major ruling on how LLP member tax-status conditions operate in practice. In the case against hedge fund Bluecrest Capital Management, founded by the UK’s wealthiest financier, HMRC successfully argued that the firm’s portfolio managers were functionally employees (treated as employees for tax purposes).