Consultation outcome

Proposals to tackle lower value tax debts — Summary of responses

Updated 28 October 2026

1. Executive Summary

Background

HM Revenue and Customs’ (HMRC’s) role is to collect tax fairly and effectively so that revenue for public services is not lost through non-payment. Most customers pay in full and on time. Where debts arise, HMRC’s existing debt collection and enforcement tools are effective in recovering higher value tax debts, contributing to HMRC resolving over 95% of tax debt by value each year. However, some of these tools are resource-intensive and are not always proportionate for pursuing large volumes of lower value debts. Each year around 750,000 debts worth £2 billion that debt collection agencies have attempted to collect on behalf of HMRC are returned unpaid. On 23 June 2026, the government published the Tackling lower value tax debts consultation, which closed on 28 August 2026.

The consultation proposed a new policy, applicable to customers who have persistently failed to engage with HMRC, to use automated processes to recover established lower-value tax debts through regular deductions direct from bank accounts. The proposed policy would be used only after standard collection activity had been exhausted and would be supported by affordability assessments, manual review for customers requiring extra support, advance notice and rights to object, appeal and seek redress.

HMRC received 65 written responses: 34 from individuals and 31 from organisations. Respondents included businesses, tax and accountancy bodies, debt advisers, deposit takers, payment organisations and credit reference agencies. HMRC also held public webinars, roundtables and bilateral meetings during the consultation.

Overarching feedback

The government is grateful to everyone who responded to the consultation and to those who engaged with officials during the consultation period. Responses demonstrated broad support for action to recover established tax debts and for the policy aimed at customers who have persistently failed to engage with HMRC. Respondents also highlighted a number of important aspects of the policy they felt required further consideration, including affordability, customer vulnerability, the use of automation, the treatment of joint accounts and overdrafts, the operational impacts on deposit takers, and the need for timely and effective redress where errors occur.

The government has carefully considered the views and evidence provided through the consultation. Having done so, it has decided to proceed with the development of the policy. The new enforcement power will apply to customers with established lower-value tax debts who have persistently failed to engage with HMRC. The aim of HMRC’s debt management and enforcement approach is to support customers to engage with HMRC and resolve their debts. This policy forms part of a broader suite of support and enforcement tools designed to encourage engagement and support effective debt recovery.

While respondents expressed a range of views on how HMRC should deliver this policy, one theme was consistent throughout. Respondents agreed that it is right that the government tackles lower value debt to ensure fairness for all customers. In particular, respondents broadly welcomed the government’s approach to ensure that:

• each customer receives a tailored affordability assessment
• those that require extra support are removed from the automated process
• any customer that engages with HMRC to manage their debt, at any point, is removed from the process

The government has listened to feedback from stakeholders and has made a number of changes to the policy proposals as a result of this feedback. Key changes made include:

• excluding Tax Credits debts from the scope of the policy, recognising stakeholder feedback that these debts often involve different customer circumstances and may require separate consideration
• excluding authorised overdrafts for individual customers from scope, responding to concerns that recovering debt from overdraft facilities could increase financial hardship
• strengthening protections for joint account holders, including additional notification and objection rights for non-debtors where a joint account is considered for recovery action
• initially limiting the policy to current accounts only, allowing the policy to be introduced in a simpler and more consistent way
• extending the notice period before deductions can begin from 14 to a minimum of 28 days, giving customers more time to consider the proposal, seek advice and contact HMRC to discuss alternative arrangements
• introducing a new ‘Refund first’ safeguard so that, where a customer objects to a deduction, the amount in dispute can be refunded while HMRC reviews the case. This provides greater protection against potential errors and reduces the risk of financial hardship

Respondents expressed an interest in continuing to engage with HMRC on some more complex delivery aspects. There was particular interest in collaborating on the design of the affordability model, as well as ensuring technical and operational processes are clearly defined to reduce administrative burdens as much as possible. A greater exploration of the availability and quality of data sets to identify extra support needs among customers who have not engaged with HMRC was also highlighted as an area of interest.

Next steps

As explained in the next steps section, the government is committed to working with stakeholders as this policy moves to the next phase. Annex B sets out a full roadmap for the development and implementation of this policy.

In particular, the government wants to co-design a Code of Practice that will set out the operational guidance and processes for this policy. The government will work with stakeholders on this document and will publish a formal first draft in Summer 2027. Following this, the government will publish draft legislation for technical consultation in Summer 2027 with a view to including this policy in the next available Finance Bill.

The government intends to undertake a test and learn phase before wider implementation. Evaluation of this test and learn phase will play an important role, helping us to refine the process where needed. The government will then adopt a phased approach to implementation of this policy, starting with companies before extending it to individuals.

2. Introduction

HMRC’s role is to collect tax fairly and effectively, ensuring that revenue for public services is not lost through non-payment. While most customers meet their tax responsibilities, with around 90% paying in full and on time, some customers do not engage with HMRC.

Each year up to 750,000 customers, with debts worth £2 billion, are contacted multiple times by HMRC and debt collection agencies (DCAs) but do not engage to resolve their debt. HMRC published a consultation to tackle this issue of lower-value debts. It set out a proposal to, in certain circumstances, recover debts directly from bank accounts where a customer persistently fails to engage with HMRC. This policy would be supported by robust safeguards to ensure deductions are affordable, customers who require extra support receive it and that the use of the policy can be challenged by customers.

The consultation, Tackling lower value tax debts, was published on 23 June 2026 and closed on 28 August 2026. HMRC held public webinars, sector-specific roundtables and one-on-one meetings with key stakeholders. The government is grateful to those who provided written feedback and participated in roundtable meetings with HMRC. HMRC received 65 responses from individuals, businesses, tax agents, debt advisers and representative organisations.

The consultation set out the policy objective it was trying to achieve and an outline of a policy proposal. As part of this, HMRC also considered its existing enforcement tools and international comparisons. The consultation considered 6 broad areas:

• overview of the proposed process
• operational considerations for deposit takers
• scope of the measure
• safeguards: protecting customers who require extra support
• safeguards: assessing affordability
• safeguards: protecting customers’ rights

This document provides a thematic summary of the responses to each proposal and sets out the government response, as well as summarising the next steps in the final chapter.

This proposal aligns with the aims of HMRC’s tax debt strategy to reduce unpaid tax year on year as a proportion of receipts through fair and efficient interventions. It also aligns with wider action the government is taking to improve the fairness of debt collection across public sector debts to ensure that people facing enforcement action are treated fairly, as set out in the Government Debt Management Strategy.

3. Overview of the proposed process

This section relates to question 1 in the consultation document which outlined the illustrative process for the operation of the policy, including:

• application of the policy only where a customer does not engage with HMRC to manage their debt, standard debt collection processes have been exhausted, and the debt remains unresolved
• the intention that the process would operate at scale and be largely automated
• customers would be assessed for affordability and whether they require extra support at the start of the process
• customers identified as requiring extra support would be removed from the automated process for manual review
• solely held accounts considered first before assessing whether a joint account was appropriate
• a formal pre-deduction notice would be issued informing the customer of the debt being recovered, proposed repayment schedule, a final opportunity for the customer to pay or contact HMRC to agree an alternative arrangement and detail on what they can do if they require extra support
• a proposed ‘notice period’ — the minimum period between issuing the pre-deduction notice and the first deduction — of 14 days

Question 1: Do you agree with the proposed process to tackle lower value debts and do you have any comments on the illustrative process outlined above?

Summary of responses

Respondents broadly supported HMRC’s objective of recovering lower value tax debts where customers have persistently failed to engage. They recognised the need for an effective and proportionate alternative where existing recovery methods may be unsuitable or disproportionately costly. They also highlighted the importance of HMRC implementing robust safeguards and customer protections to support the fair and effective operation of the policy. In particular, respondents were supportive of the proposal to only consider this policy as a last resort, once customers had gone through HMRC’s standard collection process. This means that customers will typically be contacted at least 10 times and their debt will be at least 9 months old.

Respondents expressed a strong desire to remain involved in the detailed policy design and implementation phases. Several respondents called for collaborative development of governance arrangements, operational frameworks, customer protections and technical standards.

Respondents sought clarity on how the policy would interact with other areas of HMRC debt collection activities. Customers who are managing their debt, including by a payment plan, have engaged with HMRC and will not be considered for this policy. Whilst the proposed eligibility rules do create some overlap with other enforcement tools, HMRC will only apply one tool at one time based on the appropriateness of the customers’ circumstances.

Respondents welcomed the proposal to issue customers with a pre-deduction notice prior to initiating deductions. The government had suggested a 14-day period after issue of the pre-deduction notice before deductions commence, on the basis that this customer group would have already received multiple contacts and had not engaged. The 14-day notice period had also similarities with other notice periods such as with Taking Control of Goods. However, to protect customers and provide further safeguards, respondents felt that the proposed 14 days may not provide sufficient time for some customers to fully engage with the process. Many suggested allowing additional time for customers to receive and consider the notice, seek independent advice where necessary, gather supporting evidence and understand the implications of the proposed deduction.

Respondents highlighted the importance of the pre-deduction notice as a customer safeguard. They stressed that it should provide clear and comprehensive information on the proposed deduction plan and options for customers to stop the deduction plan such as engaging with HMRC to manage their debt or object. Respondents also felt that the pre-deduction notice could be a helpful tool to signpost services to help customers that need extra support such as debt advice. One tax body suggested that, where HMRC has the relevant authority, the pre-deduction notice could also be issued to the customer’s agent.

The consultation document set out HMRC’s intention to use commercially available data from credit reference agencies to identify the most appropriate account, including when a customer has multiple accounts. Ordinarily, this will be the account with the most activity or the account with the highest surplus funds.

HMRC would only consider joint accounts if there was no viable sole account. Respondents raised some concerns that joint accounts would be in scope of this policy. Concerns were raised that funds in those accounts could potentially not belong to the debtor. The consultation document already set out provisions for third parties (for example, non-debtors) to object to the use of this policy where those funds do not belong to the debtor.

Government response

The government welcomes the broad support expressed for the proposed model, while recognising the emphasis respondents place on ensuring effective safeguards and further operational detail is clear before implementation. The government considers that the model proposed in the consultation provides a strong foundation for the policy.

The government recognises respondents’ calls for continued involvement in the detailed design and implementation of the policy, including its governance arrangements, operational framework, customer protections and technical standards. In direct response, HMRC will work collaboratively with stakeholders to co-design a new Code of Practice setting out how the policy will operate in practice and helping to ensure it is implemented fairly, transparently and proportionately. This engagement will draw on expert input through existing HMRC stakeholder forums, the Government Debt Management Function (GDMF)’s Fairness Group and bilateral engagement.

Respondents raised concerns that funds in a joint account may belong wholly or partly to a non-debtor. HMRC has carefully considered these concerns but considers excluding joint accounts entirely would create an opportunity to avoid debt recovery by moving funds from a solely held account. HMRC confirms that deductions from joint accounts would be considered only where no suitable sole account is available. Where HMRC holds the necessary information, it will notify the non-debtor prior to any deduction and provide an opportunity to object to the action. This approach builds on protections that were successfully introduced and tested through the existing Direct Recovery of Debt policy and provides an additional layer of assurance where joint accounts are involved. Subject to these safeguards, the government intends to retain joint accounts within scope.

Operational practice on joint accounts will be developed collaboratively with stakeholders as part of the new Code of Practice to ensure this element of the policy is applied fairly.

The government acknowledges the concerns expressed by respondents that the proposed 14-days’ notice period may not give some customers enough time to receive and consider the pre-deduction notice, seek advice and provide evidence. The government agrees that customers should have a meaningful opportunity to engage before any deductions are made. In response to this feedback, the government has decided to extend the notice period to a minimum of 28 days. This provides additional protection while allowing established tax debts to be recovered in a timely way.

The government also agrees with the feedback that the pre-deduction notice must clearly explain the proposed deductions, how customers can engage or object, and where they can obtain support. HMRC is committed to consulting stakeholders on the design and language of the draft pre-deduction notice before implementation to ensure the communication is clear, accessible and effective. HMRC will also review the pre-deduction notice after implementation to consider whether it remains clear and effective.

4. Operational considerations for deposit takers

This section relates to questions 2 and 3 in the consultation document which sought views on the operational and technical framework needed to support implementation, and the potential impact on deposit takers.

The initial proposal built on the approach used for the existing Direct Recovery of Debt (DRD) policy, with HMRC sending secure digital instructions to deposit takers, who would be legally required to initiate deduction plans. The significant difference is scale: up to 250,000 deduction plans could be initiated each year.

The consultation also proposed that, as under DRD, deposit takers should be protected from liability where they acted in good faith in accordance with an HMRC instruction.

Question 2: Are there operational or technical considerations HMRC should take into account when developing this approach?

Question 3: How can HMRC ensure the process of receiving, processing and transferring payments and instructions is optimised?

Summary of responses

Respondents generally considered that the proposed policy could be implemented and might be capable of operating at scale. However, they also felt that several operational, technical, legal and customer wellbeing matters would need to be addressed before implementation. This would ensure that the process was secure, responsive and efficient for HMRC, deposit takers and customers.

Respondents agreed that operating at scale would require a single, secure and standardised digital process between HMRC and deposit takers. Clear payment references would support accurate allocation and help customers understand deductions. To protect customers, respondents also emphasised that HMRC should be able to stop or amend deductions promptly where the customer engaged, their circumstances changed, or the debt was paid. While the proposed process would be largely automated, some respondents queried if a minimum debt threshold was necessary to avoid a situation where processing costs outweighed the debt being collected.

Deposit takers welcomed the proposal to protect them from liability where they acted in good faith in accordance with an HMRC instruction. They also emphasised that deposit takers should only be responsible for executing clear statutory instructions and should not be required to exercise judgement about a customer’s circumstances.

Some respondents outside the financial sector considered that checks or warnings from deposit takers could provide an additional safeguard where information available to them indicated a potential error or risk of customer harm.

Deposit takers also highlighted important differences between current accounts and savings products. Savings accounts are not generally designed to support regular outgoing payments, while deductions from products such as fixed-term and Individual Savings Accounts could create additional technical, contractual and regulatory issues.

Respondents welcomed the proposed phased implementation approach. Deposit takers stressed the importance that the final operating requirements, guidance and technical specifications are provided sufficiently far in advance of the first deductions. This would allow institutions to develop and test their systems, train staff, and establish appropriate customer-support, reconciliation and exception-handling processes.

As well as the framework set out in the consultation document, respondents also identified alternative payment mechanisms that could provide useful building blocks for the policy. These included Direct Debit infrastructure and newer technologies such as Variable Recurring Payments.

Government response

Respondents questioned whether processing very small debts would be proportionate, given the potential administrative cost. The government recognises this concern and agrees that it would not be an effective use of resources for any party to initiate deduction plans where the cost of collection exceeds the value of the debt. The government intends to retain flexibility and will consider whether an operational threshold should be set out in the Code of Practice. HMRC expects fewer than 250,000 deduction plans to be initiated each year.

Deposit takers highlighted the legal, technical and contractual challenges associated with deductions from savings and specialist products. The government agrees with stakeholders that the policy should initially focus on current accounts only. This is because this account type works best with payment mechanisms compared to savings products. If customers have savings, the expectation is that they use these to pay the debt.

If in the future, evidence emerges of deliberate behaviours in order to avoid deductions, for example, customers moving money to savings accounts, the government will consider whether additional account types should be brought into scope. This would be subject to future engagement with the financial sector about any planned changes, sufficient notice before the change happens and engagement with all stakeholders on changes to the Code of Practice.

The government recognises and agrees with respondents’ calls for guidance and technical specifications to be provided in sufficient time before the first payment deductions are planned to be made. The government will introduce a comprehensive Code of Practice setting out how the policy will operate in practice, technical requirements and HMRC’s approach to its use. The Code of Practice will be published ahead of implementation to support system development, testing, staff training and customer support.

Respondents encouraged the government to explore existing payment infrastructure and innovative approaches that could reduce implementation and operational burdens for deposit takers. The government agrees that, wherever possible, the policy should be delivered in a way that minimises costs and administrative impacts on financial institutions. The government will therefore continue to work closely with deposit takers, payment organisations and other stakeholders to explore innovative technologies and delivery models suggested during the consultation.

Respondents identified existing payment infrastructure which currently supports Direct Debit and Variable Recurring Payments, as possible building blocks. The government recognises that any solution developed for this policy would represent a new and distinct statutory payment arrangement rather than a customer-authorised payment product. The government will consider whether elements of existing payment infrastructure and emerging technologies could support a more efficient delivery model. Such an approach may not only reduce burdens on deposit takers but could also provide customers with greater visibility and flexibility in managing their repayment plans.

5. Scope of the measure

This section relates to questions 4 and 5 in the consultation document which sought views on the customers and debts that should be within scope. The proposal set out that the policy would apply to individual and company customers, covering all debts administered by HMRC, including associated interest and penalties. The consultation proposed that this policy would apply to aggregate debts, including penalties and interest, of £5,000 and below for individuals and of £10,000 and below for companies.

The government also set out a range of circumstances in which the policy would not be used to pursue debt recovery. These include cases where the customer does not hold a UK bank account, is subject to insolvency proceedings, or is deceased. Debts that are in dispute or are being managed through an existing payment or enforcement arrangement would not be considered for the policy.

Question 4: Do you agree with the proposed debts and customers that should be within scope for this measure?

Summary of responses

Responses broadly agreed with the proposed scope of the measure, to include individuals and companies, and supported limiting the policy to established, legally enforceable debts. Respondents agreed the policy should only be considered after standard debt collection activity had been exhausted. There was support for the government’s proposal to exclude managed debts, debts that are disputed and customers who were deceased or insolvent. Responses reiterated the need for customers to have had multiple opportunities to engage with HMRC prior to being considered for this policy.

Some responses called for greater transparency around HMRC’s definitions of ‘established debt’ and ‘persistent non-engagement’, either in legislation or published guidance. Tax representative bodies stressed the need for system-wide checks to prevent disputed, amended, settled, or otherwise inaccurate liabilities from being brought into scope.

There was limited support for extending the policy to HMRC-administered benefit debts without further consideration. Respondents cited differences in entitlement decisions, customer circumstances and appeal rights, and said any extension should be subject to separate assessment and consultation.

Government response

The government welcomes the support among respondents for the policy applying to both individuals and companies, provided it is limited to established and enforceable tax debts.

In response to the calls from respondents for clearer definitions and checks to prevent disputed, amended, settled or managed debts from entering the process, the government plans to lay out specific guidance on the scope of enforceable debts in the Code of Practice. Implementation will be phased, with HMRC intending to begin with company customers and use evidence from that phase to inform any subsequent application to individuals.

Respondents argued that HMRC-administered benefit debt, such as the former Tax Credits regime, should be out of scope of this policy until further assessment. In response to this concern, the government confirms that the policy will be limited to established tax debts and Child Benefit debt, with Tax Credits debts excluded from the scope of the policy. Managed or disputed debts, and customers who are deceased or subject to insolvency proceedings, will also remain outside scope.

As set out in Chapter 3, joint accounts will remain within scope to ensure the policy remains effective. However, HMRC will consider a customer’s sole accounts first and only consider a joint account where a suitable sole account is not available. Additional safeguards will apply for non-debtors, including the right to challenge deductions from funds that belong to them.

Respondents expressed concerns about including authorised overdrafts within the scope of ‘available funds’, highlighting the potential risk of worsening financial hardship. The government acknowledges these concerns and has decided that authorised overdrafts will no longer be within scope for individual customers. They will remain in scope for companies because business overdrafts are commonly used as a flexible source of working capital and excluding them entirely could allow companies with access to funds under an agreed facility to avoid recovery action. HMRC will nevertheless assess affordability and the company’s circumstances before making deductions. Unauthorised overdrafts will continue to be excluded from the policy.

Question 5: Do you envisage any issues with the proposed upper debt value limits? If so, what should the proposed upper debt value limit be?

Summary of responses

Broadly, respondents did not object to the proposed upper debt value limits and concern centred around ensuring that the regular repayments themselves were affordable. Other responses suggested that thresholds should be reviewed following implementation and informed by operational evidence.

Responses sought further information on how the government arrived at the proposed threshold figures. Some respondents suggested lower debt thresholds, proposing limits between £1,000 and £3,000 for individuals and £5,000 for companies, on the basis that these figures more accurately reflected typical tax liabilities. Further information was also sought on how total debt, including penalties and interest, would be calculated, with questions about treatment of new debts that arise during an existing deduction plan.

A minimum debt threshold that the policy would apply to was also recommended in some responses. Responses from the finance sector argued that very small debts may not justify the data processing, implementation costs or potential intrusion involved. Others suggested that a minimum threshold could prevent the policy being used, where reminders, tax-code adjustment or ordinary collection activity would be more proportionate.

Potential overlap with the existing DRD policy was highlighted by some respondents, with greater clarity sought on how the interaction between the existing policy and the proposed policy where both could potentially apply. Differences in customer protections between the 2 regimes was also questioned.

Overall, respondents emphasised that any thresholds should be evidence-based, interact clearly with existing recovery powers, reflect the circumstances of different customer groups, and operate alongside appropriate affordability and vulnerability safeguards.

Government response

The government acknowledges the views expressed by respondents regarding the proposed scope of the policy. Having balanced this feedback against the policy objectives, it has decided that the policy will apply to established tax debts of up to £5,000 for individuals and up to £10,000 for companies. The government believes that beyond these limits other enforcement powers are likely to be appropriate.

These thresholds will be assessed by reference to a customer’s total established tax debt, including any applicable interest and penalties and the policy will only apply to established tax debts. The government will review the thresholds after implementation in light of operational evidence.

The government would not use the policy for very small debts where action would be disproportionate or where the cost of collection would exceed the value of the debt.

Respondents’ questions about how the policy will interact with other enforcement powers have been noted. The government is clear that HMRC would not simultaneously pursue customers using multiple enforcement tools on the same debt.

Where another public body is also making deductions, HMRC will consider the customer’s overall circumstances, assess their affordability and the likely impact before deciding how to proceed.

Recognising the strength of stakeholder interest in these issues, the government will set out detailed guidance in the Code of Practice that will explain how the policy will interact with other recovery powers.

6. Safeguards: Protecting customers who need extra support

This section relates to questions 6 and 7 in the consultation document which sought views on the proposed approach to ensure there are robust safeguards in place to protect customers needing extra support who have debts in scope for this policy. As part of HMRC’s wider approach to supporting vulnerable customers, individuals can already access additional assistance through the GOV.UK service Get help from HMRC if you need extra support.

The consultation document set out that customers identified as needing extra support would be removed from the process for manual review. It also outlined how customer communications, including the pre-deduction notice, would highlight how customers could request extra support.

The government wants to ensure this safeguard is as robust as possible, whilst balancing broader policy objectives. Therefore, the consultation sought views on what additional sources of information HMRC could use to help identify customers who may require additional support. The consultation explored information already held by HMRC, alongside other available data sources, to support the identification of customers who may require safeguards or further review.

Question 6: Do you agree with the proposed approach to identify and support customers when administering this proposed measure?

Question 7: Are there other suitable sources of information about a customer’s potential support needs that HMRC might access in the absence of customer contact?

Summary of responses

Respondents welcomed the proposal to remove customers requiring extra support from the process for manual review, viewing this as an important safeguard before recovery action progresses. However, they considered the greater challenge to be identifying customers who have not engaged with HMRC, as non-engagement may itself indicate financial hardship, vulnerability or other barriers.

Respondents sought greater clarity on the indicators and triggers for manual review, including how HMRC would assess affordability, disputed liabilities, financial hardship and wider vulnerability. They emphasised that vulnerability can be complex, situational and change rapidly; circumstances such as bereavement, caring responsibilities, mental ill health and digital exclusion may be difficult to identify through data alone.

Respondents also highlighted the role of authorised agents, debt advisers and other trusted representatives in identifying customers requiring support and helping them engage with HMRC. Some considered engagement with a regulated debt adviser an additional safeguard when assessing customer circumstances.

Against this background, respondents supported HMRC exploring additional information sources to help identify customers requiring support, subject to appropriate legal gateways and privacy safeguards. Suggested sources included Department for Work and Pensions benefits data, Breathing Space arrangements, Debt Relief Orders, bankruptcy records, statutory debt solutions and local authority information. Powers of attorney, deputyship arrangements and information held by the Office of the Public Guardian were also identified.

Respondents additionally highlighted information from trusted third parties, including authorised tax agents, debt advisers, support workers, social services and relevant health professionals, and referred to evidence frameworks such as the Debt and Mental Health Evidence Form and Economic Abuse Evidence Form.

Government response

The government agrees with respondents about the importance of ensuring that automation does not replace human judgement where there are indications that a customer may be vulnerable or require additional support.

The government is committed to identifying customers who have already told HMRC that they need extra support and to ensuring that these customers are not subject to automated decisions. As a key safeguard, any case where vulnerability or additional support needs are identified will be referred to a trained HMRC officer for manual review. The officer will consider the customer’s circumstances and, where considered appropriate, may amend or reduce the proposed deductions, arrange specialist support, or decide that the policy should not be used altogether. Customer communications will clearly signpost how customers can contact HMRC and access appropriate support where required.

The government recognises that identifying customers who may require additional support can be challenging where there has been limited or no engagement with HMRC, as responses to the consultation have confirmed. Further, vulnerability can be complex, change quickly and may not be apparent from data alone.

Respondents strongly supported a more person-centred approach in which data is used to help identify customers who may need additional support, while maintaining appropriate human oversight and discretion. The government agrees with this approach. In addition to making use of information already provided to HMRC by customers, the government is committed to exploring whether additional data sources and indicators could help identify those requiring extra support. The government will work closely with stakeholders to assess these options and trial promising approaches to understand how they can be used effectively, proportionately and at scale.

The government will also establish a dedicated area of work as part of the development of the proposed Code of Practice to take this work forward. This will include working with stakeholders to consider the indicators that should trigger manual review, the role of trusted third-party evidence, the use of additional data sources, and the support available to customers throughout the process. The aim will be to strengthen safeguards and improve HMRC’s ability to identify and support customers who may be vulnerable or otherwise need extra help.

7. Safeguards: Assessing affordability

This section relates to questions 8 and 9, which sought views on how HMRC should assess affordability before deductions begin and prevent deductions from causing or worsening financial hardship. The consultation also asked which principles should underpin the assessment, including whether payment plans should be fixed or flexible.

Payment by instalments, rather than as a lump sum, is intended to support affordability. Before deductions begin, HMRC would assess the customer’s ability to meet the proposed instalments. For customers who have not engaged, the consultation sought views on using HMRC records, such as income, tax return and VAT data, alongside potential credit reference agency data.

Question 8: Do you agree with the overall approach to affordability for the purpose of this measure?

Question 9: Are there other suitable ways HMRC could systematically establish affordability across a high volume of cases?

Summary of responses

Respondents welcomed the commitment to assess each customer’s affordability before deductions begin and the right to object where deductions would cause financial hardship. However, they emphasised that safeguards should be built into the initial assessment rather than relying on customers to challenge an unaffordable plan.

Respondents generally recognised the challenge HMRC faces when customers do not engage, making it difficult to gather the information needed to determine an appropriate debt resolution approach. Many considered credit reference agency data to be a potentially valuable source of information when used alongside HMRC records, current income or transaction data, wider government data, and evidence provided by customers or their advisers. Some suggested that combining information such as income, credit commitments, turnover, account balances, and cost-of-living indicators could help produce indicative affordability assessments or ranges.

Support for a data-led model was conditional on robust identity matching, current and accurate information, confidence measures, appropriate legal gateways and effective governance. Respondents stressed that HMRC must remain responsible for affordability decisions, with standardised processes, clear escalation routes, human review and ongoing monitoring.

Respondents cautioned that no automated or standardised method could reliably establish a customer’s current disposable income. Available data may not capture essential household or business expenditure, dependants, priority debts, disability-related costs, fluctuating or seasonal income, recent life events, other government deductions or funds held for a specific purpose. Automated estimates should therefore inform, rather than determine, the assessment.

Respondents recommended cautious assumptions and conservative starting deductions, particularly during early implementation. They also supported regular reassessment, straightforward routes for customers or advisers to provide updated evidence, manual review where information is incomplete or confidence is low, and a test and learn phase to evaluate outcomes and refine the model.

Some respondents suggested a minimum protected balance should be applied that would remain available in the customer’s account before any deduction was made. This was felt to be an important additional safeguard for essential living or business costs and respondents suggested that the level should reflect the customer’s circumstances rather than operate as a single fixed amount.

Respondents from the debt advice sector supported use of the Standard Financial Statement, or an equivalent adviser-prepared income and expenditure assessment, and evidence from regulated debt advisers. They also called for coordinated consideration of other public-sector deductions, access to free debt advice, and manual review where customers have deficit budgets, priority arrears, fluctuating income, vulnerability or other support needs.

Wider information was seen as useful for triage, pausing deductions or triggering manual review, rather than as a substitute for a holistic assessment. Suggested sources included HMRC payment history and Time to Pay arrangements; Breathing Space and mental health crisis moratorium notifications; insolvency and statutory debt solution records; relevant DWP and local authority data; and evidence from authorised agents or debt advisers.

Respondents noted that HMRC’s own information could provide useful evidence of a customer’s previous ability to pay and attempts to manage their debt. Wider data could also indicate benefit or disability-related support, rent or council tax arrears, housing support or emergency welfare assistance. Such information would not be conclusive in isolation, and its use would require appropriate legal gateways, data-quality controls and privacy safeguards.

Government response

The government welcomes the broad support expressed by respondents for assessing affordability before deductions are made and recognises the emphasis placed on protecting customers from financial hardship. Customers considered for regular deductions will be subject to a tailored affordability assessment to determine whether the policy should be applied and, where appropriate, the level and duration of any repayment arrangement.

Respondents provided valuable insights into the use of data to assess affordability. The government remains committed to developing a data-led approach that supports tailored affordability assessments, helping to determine both whether a payment plan is affordable and the amount a customer can reasonably be expected to pay. The government is also committed to ensuring that any assessment process is transparent, so that customers can understand the data and steps involved in reaching a decision.

Credit reference agency data provides a rich and well-established source of information about a customer’s financial circumstances. As a trusted data source used extensively across the financial services sector — including for mortgages, personal lending, credit cards and telecommunications services – the government considers that this data can support robust affordability assessments based on a broader and more accurate understanding of an individual’s financial commitments and capacity to pay.

The government recognises that no single methodology can fully capture the complexity of a customer’s financial position and that further testing and refinement of different approaches using both internal and external data will be needed. This is the cornerstone of the policy, and the government believes it is important to take the time to get it right. As a result, it has decided not to prescribe a final affordability methodology at this stage, allowing time to trial options, engage intensively with stakeholders and identify the most effective approach.

The government does not currently think that a minimum account balance is a necessary safeguard. This is because the suite of safeguards the government has already proposed would provide enough protection for customers. Multiple opportunities for customers to contact HMRC and relay their financial circumstances, an affordability model that takes account of a customer’s ability to pay, and the new ‘Refund First’ approach mean there will be comprehensive steps to ensure a payment plan is affordable before deductions begin. However, it is possible that an account balance check could be incorporated as part of the affordability model or payment mechanism. The government will continue to consider a minimum account balance as part of the overall set of safeguards.

Respondents consistently emphasised the importance of cautious assumptions, transparency and robust safeguards. The government agrees the assessment must be designed with appropriate safeguards and supported by clear governance and oversight. The final methodology, the information sources used and the circumstances in which cases will be removed from the automated process will be set out in the Code of Practice. HMRC will continue to engage with stakeholders as this work develops and will review the effectiveness of the affordability framework following implementation, including the impacts on customers as a result of deductions. On the basis of this evaluation, the government will continue to consider whether certain groups of customers, for example those on the very lowest incomes, should remain in scope of the policy.

8. Safeguards: Protecting customer rights

This section relates to question 10, which sought views on the proposed approach to customers lodging objections to any proposed deductions, and the grounds on which such objections may be raised.

The consultation document outlined that customers would have the right to object, appeal, complain and seek redress where they believe deductions have been applied incorrectly or unfairly. The proposals would enable customers to object where HMRC has made a factual or procedural error, where deductions would cause financial hardship or extra support needs have not been properly considered, or where funds belong to a third party (including a joint account holder). The consultation also set out that deductions would be paused while reviewing an objection.

Customers will have further rights of appeal to an independent tribunal or other external body. Customers would also be able to use HMRC’s existing complaints process to challenge poor service or administrative errors. Where a complaint is upheld, HMRC could suspend or cancel deductions, refund costs incurred as a result of its error, and provide appropriate redress.

Question 10: Do you agree with the government’s proposed approach to enabling customers to lodge an objection, the proposed grounds for objection and the timescales for doing so?

Summary of responses

Respondents were supportive of the introduction of a formal objection process and recognised the value of providing customers with a clear mechanism through which to challenge proposed deductions. However, many also identified a number of areas where additional safeguards and refinements could strengthen the fairness, proportionality and effectiveness of the process. Respondents highlighted situations such as changes in income, illness, bereavement, affordability concerns, economic abuse, new evidence and possible errors in HMRC’s assessment as examples that may merit consideration and improve the fairness and accessibility of the process.

Respondents suggested a range of operational enhancements that could further strengthen the objection process. These included using open banking data to support hardship assessments, incorporating income maximisation and unclaimed benefit checks into affordability assessments and reissuing communications where there is evidence that a notice may not have been received.

There was support for HMRC’s proposal of having an independent oversight within the review process. More broadly, respondents highlighted the importance of clear appeal rights and effective independent challenge mechanisms to support confidence in the process.

Many of the responses received welcomed the proposal that deductions should be paused while objections are being considered. Respondents considered this an important safeguard and suggested that deductions should remain suspended throughout objection reviews, appeals and other investigations where relevant information is still being assessed.

Respondents emphasised the importance of accessible and effective redress arrangements where customers experience financial detriment as a result of HMRC action. The need for reimbursement of losses, fees and charges incurred as a result of HMRC errors was also highlighted, with some responses noting that confidence in the policy would be strengthened by well-functioning and responsive redress mechanisms.

Government response

The government welcomes the strong support expressed by respondents for a formal objections process and confirms that customers will have the right to object before deductions commence.

The government has shaped the objections process to ensure customers will have meaningful opportunities to raise concerns regarding factual or procedural errors, financial hardship, unmet support needs and funds belonging to a third party, including another party of a joint account. This reflects the government’s commitment to ensuring that the policy operates fairly and proportionately, while providing appropriate protections for those affected.

The government recognises the importance respondents placed on effective redress arrangements and for recovery action to be suspended where a dispute remains unresolved. In response to this feedback, the government confirms that where a customer raises an objection, HMRC will pause any ongoing deductions while the objection is reviewed. Recovery action will not resume until the review has been completed and the outcome clearly communicated to the customer.

The government has carefully considered concerns raised during the consultation that customers could experience hardship if a deduction is later found to be inappropriate. In response, the government is proposing a new ‘Refund First’ approach as an enhanced safeguard within the policy. Under this approach, customers who object to a deduction would receive a refund while HMRC reviews their case, helping to minimise the impact of any potential error and providing greater reassurance throughout the review process. Access to an immediate refund would be subject to appropriate controls to prevent misuse of this safeguard. Where an objection is upheld, no further recovery action would be taken. Where an objection is not upheld, deductions would resume and the payment plan would be adjusted to recover the refunded amount. The government will set out detailed guidance in the Code of Practice that will explain how the Refund First policy will operate.

The government has reflected carefully on respondents’ views regarding the importance of providing sufficient time for customers to understand and respond to a pre-deduction notice. As set out in Chapter 3, the government has concluded that increasing the notice period to a minimum of 28 days provides an appropriate balance between protecting customer rights and ensuring that established tax debts can be recovered in a timely manner. This reflects respondents’ feedback on the importance of providing customers with sufficient time to consider the pre-deduction notice process, seek advice and to raise any concerns before any deductions are made. HMRC will also further consider the suggestion that the pre-deduction notice should be shared with a customer’s representative where appropriate.

The government agrees that customers should retain access to clear and effective routes of redress where concerns arise. Customers will continue to have access to HMRC’s established complaints process alongside any applicable appeal rights. Where HMRC has made an error, it will consider appropriate remedies, based on the circumstances of the case, including reimbursement of any related losses, fees or charges. These arrangements are intended to ensure that customers have confidence that mistakes will be addressed fairly and appropriately.

Further detail on objection grounds, review arrangements, redress mechanisms and interactions of the policy with other recovery powers will be set out in the proposed Code of Practice. The government recognises that transparency and clarity will be critical to the successful implementation of the policy and is committed to providing customers and stakeholders with a clear understanding of how the objection and refund processes will operate in practice. HMRC will continue to work closely with stakeholders as the policy develops and will help ensure that these processes are implemented fairly, transparently and consistently.

9. Next steps

1. The government is committed to working with stakeholders as this policy moves into the next phase. HMRC will continue to work with deposit takers, tax and debt advisers, representative bodies and other interested parties on the detailed policy design.

2. A delivery roadmap which sets out how the policy design will continue to be developed in the coming months, as well as future steps towards implementation, is set out at Annex B of this document.

3. A critical next step will be the development of a Code of Practice with key stakeholders. This collaborative process will enable stakeholders to help shape the operational approach, safeguards and customer protections, helping to ensure the policy is fair, transparent and workable in practice. The government intends to publish a first draft in Summer 2027.

4. The government intends to publish draft legislation for technical consultation in Summer 2027, with a view to introducing it at the next available legislative opportunity.

5. The government intends to explore a test and learn phase in 2028, running into Spring 2029. This will test the operational processes, safeguards, affordability model and payment mechanism on a limited scale, enabling HMRC to assess customer and deposit taker impacts and refine the approach before wider implementation.

6. A measured rollout will begin from the financial year 2029 to 2030. Implementation will be monitored throughout.

Annex A: List of respondents

The government is grateful to the 34 individuals and 31 organisations who responded to the consultation and to those who attended the stakeholder roundtables. The government received written responses from:

Advice NI

All Together Money

Association of Taxation Technicians

BDO LLP

Building Societies Association

Christians Against Poverty

Citizens Advice South Warwickshire

Civil Enforcement Association and High Court Enforcement Officers Association

Deloitte

Equifax

Experian

Grant Thornton UK Advisory and Tax LLP

Institute of Chartered Accountants England and Wales (ICAEW)

Institute of Chartered Accountants Scotland (ICAS)

Institute of Financial Accountants

Irish League of Credit Unions

Leeds Building Society

Low Incomes Tax Reform Group (LITRG)

Lowell

Money and Pensions Service

Money Advice Scotland

Money Advice Trust

Money Wellness

Open Banking

Pay UK

Policy in Practice

TaxAid

The Tax Academy

TransUnion

UK Finance

UK Payments Initiative

34 individuals

Annex B: Delivery Roadmap

Schedule	Deliverable
Autumn 2026	Announcement: Announce the policy to tackle lower value debt and publish consultation response at Budget 2026.
Winter 2026 to Summer 2027	Collaborative policy design aspect 1: Develop the affordability model through regular workshops primarily with debt advice organisations and tax bodies.
Winter 2026 to Summer 2027	Collaborative policy design aspect 2: Design our extra-support approach through regular workshops primarily with debt advice organisations.
Winter 2026 to Summer 2027	Collaborative policy design aspect 3: Develop the feasibility of the payment mechanism through regular workshops with relevant sector stakeholders.
Summer 2027	Collaborative Code of Practice design: Publish a draft Code of Practice and share a draft pre-deduction notice with all stakeholders.
Summer 2027	Technical consultation: Publish draft legislation for technical consultation.
Autumn 2027 to Spring 2028	Finance bill: Introduce primary legislation and finalise operational design.
Summer 2028 to Spring 2029	Test and learn: Launch test and learn phase in 2028 to understand customer behaviour and gather insight before wider implementation.
2029 to 2030	Phased implementation: Phased rollout, starting with companies in 2029 and then individuals in 2030.