HMRC to begin taking money from bank accounts in bid to close £47bn tax gap

HMRC has confirmed it will start taking money directly from bank accounts in the government’s latest bid to address unpaid taxes.

The tax office has announced that it has introduced the use of ‘Direct Collection of Debts’ powers, which require banks and construction companies to make payments directly from accounts on request.

He claims this will only affect a “minority”, that it will only be used for businesses and individuals who “can pay their debts but choose not to”. Orders can be placed with banks, building societies and ISA providers.

Official statistics show the tax gap currently stands at an estimated 5.3 per cent, equating to £46.8bn in 2023/24. Labor pledged to raise £7.5 billion by closing this gap in this year’s Spring Statement with new measures including increased investigations into fraud and extra HMRC compliance staff.

The reintroduction of direct recovery powers is another measure designed to close this gap; HMRC confirmed it was initially rolling out the powers using a ‘test and learn’ approach.

The tax office has been able to use its powers since 2015 but suspended bailouts during the Covid pandemic. Between 2015 and 2018 it made just 19 direct recoveries, generating refunds of £361,678.

HMRC said the powers will only be used when certain criteria are met and “strict safeguards” are in place. To be subject to direct collection, the debtor must owe £1,000 or more, have ignored HMRC communications, and must be able to pay but refuse to do so.

The tax office has also said it will not take money from an account that will have less than £5,000 after recovery.

Before receiving any money, an HMRC representative must visit the person at their home or workplace. During this meeting they will check the accuracy of the debt, discuss alternative ways they can repay the tax they owe, and make sure the person is not vulnerable.

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But the Low Income Tax Reform Group said the tax authority needed to go further in creating safeguards, writing: “We are awaiting clarification from HMRC on the process they will undertake to identify vulnerable customers, how this class of taxpayer will be defined and the type of support that will be provided.”

If the debtor objects to the collection, he or she may object within 30 days. HMRC says it will not transfer money until a decision is made, usually 30 days after the complaint. Debtors may also appeal to the district court on certain grounds.

A briefing from HMRC says: “Some people have real financial difficulty paying their taxes. This often happens when their lives are affected by a major personal event or a problem arises at work. HMRC routinely has a sympathetic approach to those who need additional support.”

The new powers come into force ahead of the introduction of the government’s Public Authorities Bill later this year, which will give the Department for Work and Pensions (DWP) the power to recover funds from bank accounts using recovery orders.

Campaigners opposed the plans earlier this week, arguing they threatened to introduce an “unprecedented” level of state surveillance.