HMRC expands bank account powers to take 1p from taxpayers | UK | News

HMRC could be given the power to collect unpaid taxes directly from people’s bank accounts, even if they owe as little as 1p, under new Government proposals.

The plans, which are currently under consultation, will remove the current £1,000 minimum debt threshold before HMRC can use its Direct Collection of Debts powers.

If approved, the changes will mean the tax office can in theory recover debts of any value, but ministers insist the powers will only be used against people who can afford to pay but have repeatedly refused to do so.

The consultation also proposes removing the current rule requiring HMRC to leave at least £5,000 in a taxpayer’s bank account after receiving money back.

Currently HMRC can only recover money directly from bank accounts, one of which owes more than £1,000; Both safeguards have been in place since the powers were introduced in 2015.

The proposal does not mean HMRC will automatically collect 1p from every taxpayer. Instead, removing the threshold would allow authorities to go after smaller unpaid tax debts where they believe someone has repeatedly ignored requests for payment.

HMRC estimates that fewer than 250,000 people and businesses will be able to benefit from the extended entitlements each year, with fewer still expected to apply for automatic repayment schemes.

The proposals have sparked concerns among tax experts, who argue the measures could give HMRC too much power.

Nimesh Shah, of tax firm Blick Rothenberg, said: “I have some sympathy for HMRC having to spend a significant amount of time pursuing smaller amounts and the time and cost involved may be higher than the amount in question.”

But he warned: “My concern is that this could be used as a ‘sledgehammer’ by HMRC without appropriate safeguards.”

He added: “There is also the issue of HMRC assessing the wrong amount of tax and then using this power to recover an amount that was not actually due.”

Victoria Todd, of the Low Income Tax Reform Group, also questioned whether the proposals went far enough to protect people on low incomes.

He said: “We are particularly concerned that the proposals do not currently include the minimum amount that taxpayers must remain in their account.”

He added: “For those living on a tight budget, cuts could leave them struggling to cover basic living expenses.”

Todd said HMRC would need robust systems to identify vulnerable taxpayers and distinguish them from those who deliberately refuse to pay.

Robert Salter, also of Blick Rothenberg, voiced concern and asked: “Is there a risk that such automatic collection arrangements will drive taxpayers further into debt?”

HMRC has suggested deductions could be capped at 50% of a person’s disposable income, but this proposal is still being considered as part of the consultation.

Defending the plans, Chancellor of the Exchequer Dan Tomlinson said: “The vast majority pay on time and in full, so it is vital to a fair tax system that we seek to recover debts from those who can afford to pay but refuse to pay.”

He added: “These expanded powers will ensure fairness for all taxpayers, while support will continue to be available to those seeking help with their payments.”

More than 750,000 low-value tax debts worth more than £2 billion remain uncollected each year, despite authorities contacting taxpayers at least 10 times, according to HMRC. The measures form part of wider efforts to reduce the UK’s tax gap, which will hit £59.2bn in 2024-25, up from £46.8bn the previous year.

The consultation is open until 28 August.