Proposals to tackle lower value tax debts

Question 1

Summary

Accepted Answer

Subject of this consultation

This consultation sets out proposals for extending an existing HM Revenue and Customs (HMRC) enforcement power to recover lower value tax debts from customers who have persistently not engaged with HMRC. Whilst HMRC is sufficiently equipped to tackle higher value debts, lower value debts present unique challenges. This measure is aimed at those customers who have repeatedly failed to respond to HMRC’s attempts to contact them and collect what is owed. The proposed measure would apply to the customers’ total tax debts, across all tax regimes. The power could enable HMRC to collect these debts by deducting affordable monthly instalments directly from the customer’s UK bank or building society account. The customer would be notified in advance and given a final opportunity to pay or contact HMRC. Although the upper value limits have not been decided at this stage, HMRC does not expect debts in scope to exceed £10,000 (including any interest and penalties at the point of action). We are also mindful that there may be a need to apply a lower debt value limit for individuals. At any point during the enforcement process, the customer would be encouraged to get in touch to settle the debt or discuss an alternative arrangement if the automated deductions are not suitable for their circumstances.

Scope of this consultation

This document explains why and how the proposed power might work and seeks stakeholder views on key aspects of its design. In particular, we invite feedback on the appropriateness of the scope and safeguards we have outlined, for example, which debts and customers should be included or excluded, what value limits are proportionate, how the process should operate in practice, and what protections are needed for customers requiring extra support or those in financial hardship. We also seek input on the potential impacts on financial institutions (such as banks or building societies) that would be required to implement deduction instructions, and on any other considerations to ensure the policy is fair and effective.

Who should read this

This consultation seeks views from anyone who could be affected by these changes to debt enforcement powers. This includes financial institutions, such as banks and building societies. It also seeks views from groups representing customers requiring extra support, to ensure the proposed safeguards are balanced and appropriate.

Duration

The consultation will commence on 23 June 2026 and close on 28 August 2026.

How to respond or enquire about this consultation

By email to: taxdebtsconsultation@hmrc.gov.uk

By post to:

Lower Value Tax Debts Consultation Team
Debt Management
7th Floor
14 Westfield Avenue
London
E20 1HZ

Additional ways to be involved

On request this document can be produced in Welsh and alternative formats including large print, audio, and Braille formats. HMRC welcomes meetings with interested parties to discuss these proposals.

After the consultation

A summary of responses will be published later this year.

Getting to this stage

The challenge of recovering relatively small but hard-to-collect tax debts is longstanding. HMRC’s existing powers — for example, the Direct Recovery of Debts (DRD) introduced in 2015 — allow for recovery of tax directly from bank accounts, but only via a one-time lump sum approach. Those existing powers involve manual, case by case processes and may not be well suited to lower value debts or high volume use. Because formal court and goods seizure routes involve fixed costs, they are not typically the most cost effective approach for recovering high volumes of smaller debts and HMRC will generally prioritise those tools for cases where they are proportionate and deliver value for money.

Recognising this gap, the government announced at Spring Statement 2025 an intention to develop a new enforcement tool to address lower value debts. This consultation is the first step in developing the details of that tool. It builds on HMRC’s operational experience and policy thinking in the years since DRD was introduced, including lessons from the growth of Time to Pay (TTP) arrangements as a means of helping customers in temporary difficulty. We have also studied approaches in other countries (see below) and engaged internally on how to ensure any power is used proportionately and with appropriate safeguards. It is intended this extended power would operate efficiently at scale, using automated processes where possible, to ensure effective recovery and implementation.

Previous engagement

HMRC has not consulted on this measure before but has previously consulted on a similar measure. This is the ‘Direct Recovery of Debts’ power, consulted on in 2014 and enacted in the Finance (No. 2) Act 2015. The consultation and summary of responses are available online. To ensure that any power is used proportionately and with appropriate safeguards HMRC will work in line with HMRC’s Powers & Safeguards principles.

Question 2

1. Executive Summary

Accepted Answer

The vast majority of customers meet their tax obligations, with nine in ten paying in full and on time. Nonetheless, around £100 billion of tax a year becomes a debt. HMRC recognises this can be owed for a variety of reasons, including factors outside the control of customers, and that not everyone can pay in full. Where this is the case, HMRC’s priority is to encourage early engagement and to support customers to pay what they owe in a way that is affordable and fair, so they continue to meet their obligations.

The majority of debt is resolved in the first few months as customers engage with HMRC in response to direct communications. HMRC knows that the best payment solution is different for each individual and business. Being aware of how personal circumstances can impact this, HMRC provides extra, bespoke support to those facing financial hardship or who have personal difficulties. Support can range from an extended TTP payment plan to receiving one-to-one dedicated extra support.

However, there is a significant minority of customers who repeatedly choose to not engage with HMRC and therefore cannot receive help to resolve their debt or other support as needed. Each year over 750,000 lower value debts, collectively worth over £2 billion, are returned to HMRC from debt collection agencies where efforts to collect what is owed has not been possible.

Persistent non‑engagement is unfair to the vast majority of customers who either pay in full or engage early to resolve their debts. If left unaddressed, it risks undermining confidence in the fairness of the tax system by creating the perception that some customers can avoid paying what they owe simply by not engaging. To maintain trust in the tax system, HMRC must efficiently recover debts from those who can pay but refuse to.

HMRC already has a well‑established set of tools for collecting debts from these customers. These are designed to encourage engagement at each stage and are only used where a customer does not engage or co-operate. Existing tools include court action, Taking Control of Goods, Direct Recovery of Debts (DRD), and in serious cases, insolvency proceedings. These are costly and can have other financial implications for customers, such as further fees or impacting credit scores.

While this toolkit is effective overall, no existing power is well suited to recovering high volumes of lower value debts from persistently disengaged customers. This creates a gap which risks undermining confidence in the fairness of the tax system.

To ensure fairness, protect trust in the tax system and recover debts from those who can pay but refuse to engage, the government is consulting on proposals for extending existing powers to address this gap, alongside a comprehensive set of safeguards to ensure the power is applied fairly and appropriately.

This proposed enforcement power would allow HMRC, in tightly defined circumstances, to recover lower value tax debts by deducting instalment payments directly from a customer’s account. This would support customers to resolve their debts in a more manageable way in line with their particular circumstances, rather than a single lump‑sum deduction.

Robust safeguards are central to the design of this proposal. The government recognises that enforcement must be balanced with appropriate protections, particularly for customers who may be vulnerable or experiencing temporary financial difficulty.

The proposed framework of safeguards includes:

use of HMRC’s existing processes to identify customers who may require extra support
clear prompts and opportunities for customers to disclose support needs or changes in circumstances
manual review by trained staff where support indicators arise, with the ability to divert cases away from automation
instalment lengths and deduction levels designed to prevent financial hardship, informed by affordability principles already used by HMRC when agreeing Time to Pay plans with customers
clear rights to object, appeal, complain and seek redress, including independent review and potential tribunal oversight, where customers they believe the power to directly deduct an instalment payment was applied incorrectly or unfairly

Taken together, these safeguards are intended to ensure the power is used only where appropriate, and that customers are not forced through an automated process without human judgement where it is needed.

This consultation seeks views on whether the proposed power represents a fair, proportionate and effective response to the challenge of lower value tax debts, and on how it should be designed and implemented in practice.

The government welcomes views from individuals, businesses, representative bodies, financial institutions and other stakeholders. Responses will inform whether and how the proposal is taken forward, including the development of legislation and detailed operational design.

Question 3

2. Introduction

Accepted Answer

Background and context

HMRC’s duty is to collect tax fairly and effectively, ensuring that revenue for public services is not lost through non-payment. HMRC’s tax debt strategy aims to reduce unpaid tax year on year as a proportion of receipts by maintaining fairness and protecting public finances, supported through four pillars that prevent debt arising, tailor interventions to customer behaviour and need, resolve debts efficiently through support and enforcement, and keep policy, systems and approaches adaptable and modern.

As part of HMRC’s Transformation Roadmap, debt and payments sit within a wider programme to modernise the tax and customs system. HMRC is transforming how tax debt is administered, making processes more automated, self-service focused, and easier for customers to get things right first time. This includes using technology to improve customer control over tax affairs, embedding systemwide policy and operational changes, and building secure, future ready IT. This proposal also aligns with the wider Government Debt Management Strategy, which sets cross-government expectations for fair, proportionate and sustainable debt collection.

Most customers meet their tax responsibilities, with around 90% paying in full and on time. However, each year approximately £100 billion of tax liabilities are not paid by the due date. HMRC’s standard approach is to encourage and support customers to resolve debts through reminders and affordable Time to Pay (TTP) plans where customers are in temporary difficulty, escalating to enforcement only where customers do not engage or cooperate. Through this approach and the use of existing enforcement tools, HMRC resolves over 95% of tax debt by value each year.

Despite this activity, a persistent subset of lower value debts remains unresolved. These cases typically involve customers who repeatedly fail to respond to HMRC correspondence and subsequent contact from debt collection agencies. Because these debts are lower value, pursuing traditional enforcement routes — such as court action or Taking Control of Goods (TCoG) — is often disproportionate in cost and resource. As a result, collection activity may stop short of enforcement action. This risks undermining fairness for the vast majority of customers who meet their obligations or actively engage with HMRC to resolve debts.

The COVID‑19 pandemic exacerbated this issue. Economic impacts on customers’ ability to pay, alongside a pause in collection activity, led to a sharp increase in tax debt, which peaked at £67 billion in August 2020. The number of customers with tax debt rose from 3.8 million to 6.2 million by September 2021, significantly increasing the volume of lower value debts. While normal collection activity has since resumed, a gap remains in HMRC’s ability to deal efficiently with these harder to collect debts.

The scale of the issue is significant. Internal analysis indicates that around 4.8 million individuals and companies hold debts below or equal to £5,000 (individuals) / £10,000 (businesses), representing approximately 11.5 million debts with a total value of around £4 billion.

The following sections set out HMRC’s existing debt collection framework, the policy objectives in this area, and relevant international comparisons.

Existing debt enforcement mechanisms in HMRC

HMRC’s current debt collection approach prioritises support and encourages voluntary compliance wherever possible. The first steps for a new debt typically include reminder letters and phone calls, and often an offer of a Time to Pay (TTP) plan if the customer is in temporary financial difficulty. TTP is very effective for those who engage, with approximately 90% of TTP plans completed successfully with an average length of around 14 months, helping thousands of people and businesses clear their tax debts over time in sustainable and manageable instalments. For those who fail to respond to reminders, HMRC may refer the case to an external debt collection agency (DCA) to intensify contact efforts. These agencies can often find alternative contact routes and prompt payment without further action.

HMRC also has the power to recover some debts through PAYE deductions, where a customer has PAYE income and the debt is suitable for recovery via a tax code adjustment. However, when this is not possible and a customer continues to ignore all communications, HMRC must consider enforcement action.

At present, the main enforcement tools include:

County Court or Civil Recovery Action: HMRC can seek a County Court Judgment (CCJ) for the debt, which can then be enforced by court bailiffs or through orders against the customer’s assets (such as a Freezing Order to freeze funds in a bank account, or a Charging Order against property). In Scotland, a Summary Warrant process and related diligences (like bank account arrestment) serve a similar function. These legal processes involve formal proceedings and costs, so HMRC must consider proportionality and value for money when deciding whether court action is appropriate. They also have broader consequences for customers, including additional costs and potential impacts on credit records and increasing the overall amount owed
Taking Control of Goods (TCoG): In England and Wales, HMRC can use its in-house enforcement agents to take control of goods and sell them to recover unpaid tax. This method also has fixed costs and practical limits. It generally isn’t pursued for lower value debts because if the value of goods is low and auction costs are considered, it might not be proportionate. Moreover, seizing goods is resource intensive and typically requires an in-person visit. HMRC’s field collectors focus on cases where there is a reasonable expectation of recovering value (and again, usually where debts are higher). Customers incur additional costs once TCoG action begins, which are added to the underlying tax debt meaning overall liabilities can increase materially
Direct Recovery of Debts (DRD): HMRC can seek to directly recover lump sums from the bank accounts of persistently disengaged customers through its existing DRD power: This power allows HMRC to recover debts meeting the eligibility criteria (over £1,000 owed, with at least £5,000 left in the account after deduction). The process is manual, requiring HMRC to issue information notices to banks, the temporary holding/freezing of funds and issuing the customer notice of 30 days to object or pay before any money is taken. As well as enabling enforcement, DRD has encouraged customers to pay voluntarily when faced with the prospect of direct recovery. However, due to its manual nature, it is not a well-suited tool to deal with high-volume, lower-value debts. DRD only supports lump-sum deductions and does not accommodate recovery by instalments. Where DRD is pursued, this could cause disruption to customers’ personal or business finances and potentially affect their ability to meet day‑to‑day or operational commitments (irrespective of the safeguards applied)
Insolvency (Bankruptcy/Winding-Up): For severe cases, HMRC can initiate bankruptcy proceedings against individuals or winding-up against companies that owe tax. This is a significant step usually taken only for substantial debts or egregious non-compliance, not for minor sums. There are also statutory minimum debt thresholds for insolvency (£5,000 for bankruptcy petitions, for example). Insolvency is clearly not appropriate for the majority of smaller debt cases. Such proceedings can have immediate consequences for a customer, including disruption to trading, loss of access to credit and suppliers, reputational damage, and ultimately compulsory liquidation

In summary, while HMRC has an existing toolkit for debt enforcement, each tool has its scope and limits. For lower value debts owed by disengaged customers, none of the existing tools would be appropriate. Court action or TCoG would be disproportionate or uneconomical and DRD would be administratively burdensome.

As a result, a proportion of customers with lower value debts who do not engage with HMRC can remain on the debt balance for longer than is desirable. This creates the perception that smaller debts are less likely to be resolved where customers do not engage, which risks undermining confidence in the fairness of the system. Addressing this gap helps to protect revenue and reinforces that all customers are expected to pay what is owed or engage with HMRC to agree a solution. This is in line with the Government Debt Management Strategy aim to support the resolution of hard-to-collect debt by ensuring that debt resolution powers are fit for purpose and fair.

Policy objective

The objective of the proposed measure is to close the identified enforcement gap in a way that is proportionate, scalable and fair. The government wishes to ensure all tax debts, regardless of size, are collectable and enforceable in practice, in alignment with the latest Government Debt Management Strategy. Everyone who owes tax should either pay it or engage with HMRC to find a solution. Persistent refusal to engage with HMRC is not — and should not be seen as — a route to escaping liability.

The government recognises that there may be some customers who owe tax debt and are unable to pay in full. So, the objective is to identify a way that enables HMRC to collect the debt in a way which is more manageable for customers, for example through instalment payments.

It is fundamental that any new enforcement measure has robust safeguards and applies only to those who can pay via instalment but choose not to. The policy will not be designed to negatively impact those who need extra support in managing their tax affairs, and where it is aware of customer circumstances, HMRC will work with those customers, offering tailored assistance.

Policy proposal

To meet this policy objective, the government is considering introducing an automated process to directly deduct instalment payments from those customers with lower value debts who persistently do not engage with HMRC. Due to the high volume of lower value debts that persist, the process must be able to operate at scale instead of intensive case by case court or field action. The government wants to explore using data and digital solutions, in partnership with financial institutions, to create automated processes that could fairly and proportionately handle a high volume of low value debts each year.

Whilst the aims of this measure are to recover more debt that is currently uncollectable and improve tax receipts and fairness, the government also expects that this measure would act as a deterrent against non-engagement. Demonstrating that action can and will be taken to recover debts would help maintain trust in the tax system’s capacity to address non-compliance effectively.

This proposal builds on existing models of direct recovery and would align the UK’s tax system with technology and process used internationally and elsewhere (discussed in further detail below). This policy would help ensure HMRC keeps pace with global best practices, using data and automation to achieve compliance outcomes more efficiently.

This consultation seeks views on this proposed approach as a proportionate response to the underlying issue of lower value debts, as well as the design choices and the safeguards under consideration. The government welcomes feedback from individuals, businesses, financial institutions and other stakeholders to ensure that the proposed power is effective, proportionate and fair.

International comparisons

The principle of direct recovery of debt is well established, with a number of examples from similar tax systems internationally of directly deducting funds from customers’ bank accounts. Research shows that automated bank account deductions are a common tool that is proven to work.

International comparisons were researched when developing the design of this power to ensure our objectives are met. A non-exhaustive list of those examples is set out below.

Netherlands: Government Order (Overheidsvordering)

The Dutch government introduced the Government Order (Overheidsvordering) in 2009 under the Tax Collection Act. This administrative power enables various government authorities to recover tax debts directly from a debtor’s bank account when payment has not been made despite reminders and enforcement notices. Key features include:

a simplified electronic seizure of funds from a debtor’s current account, including authorised overdraft facilities
exclusions apply to savings accounts and credit card balances. The measure is not used where the debtor is subject to debt restructuring or has been declared bankrupt
the mechanism is specifically designed for the recovery of small debts (up to €1,500)
an objection procedure is available to challenge potentially unjustified seizures

This model illustrates how a streamlined, automated deduction process can be used to recover lower-value debts while incorporating universal safeguards for customers.

Australia: Garnishee Notices

The Australian Taxation Office (ATO) employs ‘garnishee notices’ under the Taxation Administration Act to recover unpaid tax debts. These notices compel third parties such as banks, employers, or merchant acquirers to redirect funds to the ATO. Garnishee notices may be issued in 2 forms:

a point in time (PIT) garnishee, which attaches the available balance in a debtor’s account immediately
a continuing garnishee, which remains in force and captures future credits until the debt is fully repaid

These notices are typically issued after multiple engagement attempts have failed and are subject to hardship considerations. Financial institutions are expected to identify all accounts held by the debtor and act accordingly. This approach demonstrates how recurring deductions can be operationalised at scale, with appropriate checks and balances.

France - Saisie Administrative à Tiers Détenteur (SATD)

The Saisie administrative à tiers détenteur (SATD) is an administrative enforcement mechanism used by the French tax authorities (and other public creditors) to recover unpaid tax and public debts directly from third parties holding money owed to, or belonging to, the debtor (most commonly banks or employers). SATD does not require prior court approval but operates with a number of safeguards including a protected minimum balance left accessible in bank accounts and notification and appeal rights.

Canada — Requirement to Pay (RTP)

Canada’s Requirement to Pay (RTP) is an administrative tax‑debt recovery measure that allows the Canada Revenue Agency (CRA) to collect unpaid taxes directly from third parties who owe money to, or hold money for, a tax debtor. An RTP can be issued without court approval and requires the third party — most commonly banks, employers, pension providers, or business customers — to redirect payments to the state instead of the customer, up to the value of the debt. It is functionally a garnishment, but one exercised unilaterally by the tax authority, and can apply to both existing and future payments such as wages, bank balances, rental income, or business receipts.

Question 4

3. Overview of the proposed process

Accepted Answer

This section provides an outline of how the proposed measure could work. The government will consider feedback from this consultation when further developing this measure.

For the purpose of explaining this measure, the government will use the term ‘deposit taker’ to mean all major deposit holding institutions where individuals or businesses keep money (i.e. not just banks and building societies). A similar approach was taken for DRD (see Paragraph 23(1) of Schedule 8 to Finance Act (No.2) 2015) to ensure customers cannot simply move money from a bank account to evade deductions.

HMRC will follow its usual approach to collecting a debt once it arises, contacting the customer to secure payment and offering support where appropriate, such as a TTP plan. If the customer does not engage or refuses to pay, HMRC may escalate to stronger recovery activity including visits and use of debt collection agencies. Where HMRC’s standard collection processes have been exhausted, and the debt remains unresolved, the debt would be considered for direct recovery through the proposed measure.

Once a customer is identified as being in scope (see section 5 for further detail) the government’s intention is that this process would be automated and routine, with safeguards (see sections 6 to 8) built in to protect customers. This would allow HMRC — and deposit takers involved in processing deductions — to apply the process at scale to a large population of debts in an efficient and consistent manner. The government also wants to ensure this process can be paused or changed as new information about a customer becomes available.

Should the government decide to proceed with this measure it will consider how it should be implemented, including using a phased ‘test and learn’ approach where the government will work with stakeholders and ensure sufficient and robust oversight Further detail will be laid out in the Summary of Responses.

Pre-Deduction Notice (PDN)

Before any deduction action, HMRC would send the customer a formal Pre-Deduction Notice informing them of our intention to commence deductions. The government is also exploring whether other digital forms of communication could be used to notify customers of their PDN. This notice could include:

a detailed breakdown of the debt being recovered, including any interest and penalties due
the proposed instalment payment plan and monthly amount
the date instructions will be issued to the deposit taker to commence deductions
confirmation that no deductions will be made until the notice period has expired
clear communication that HMRC is responsible for making this decision, not the deposit taker (see section 3) and any queries must be made to HMRC

The PDN would also include clear guidance on how the customer can respond to the PDN by:

paying the debt in full
contacting HMRC to disclose extra support requirements
contacting HMRC to arrange a TTP plan
raising an objection to the PDN (see section 8)

The purpose of the PDN is to provide the customer with clear information about the action HMRC intends to take to enforce the outstanding debt. It would also serve as a final chance for the customer to avoid enforcement by taking active steps to resolve their debt.

It is proposed that a period between the issuance of the PDN and the first deduction – the ‘notice period’ — would be in place. The government is considering 14-day notice period (with the ability to object at any point until the final payment — see section 8). HMRC uses a 14-day minimum notice period when exercising its Taking Control of Goods power to recover owed sums. The standard Notice of Enforcement requires the customer to pay within 14 days before HMRC can visit premises to take control of goods. We would welcome views on whether a 14-day notice period prior to directly deducting the first instalment payment is sufficient.

As with TTP plans, once instalment payments begin, it is the government’s intention that penalties associated with that debt would also stop accruing.

Deposit taker instructions and deductions

If the customer does not respond to the notice, HMRC would then send a deduction instruction to the deposit taker with whom the customer has an account after the notice period expires. This instruction would oblige the deposit taker to begin making the specified deductions for a specific period of time, with defined start and end dates (see section 7 on instalment plan lengths).

The deposit taker would then execute that instalment payment plan, which would be similar to the process of establishing a standing order, with deductions made on a fixed date each cycle. The government’s current proposal is that the payment cycle would be monthly, offering clarity about the instalment schedule, replicating the approach of many other regular bills. The deposit taker would then be required to transfer those payments to HMRC. Further details are set out in section 4, and the government will work with deposit-takers to optimise this process.

Multiple accounts

If a customer has multiple accounts with different deposit takers, the government is exploring using external data from credit reference agencies (CRAs) to decide which account is the most appropriate to deduct payments from. If an account has insufficient funds, and deductions repeatedly fail, HMRC would consider using an alternative account where available. The government will work with deposit takers to ensure the administrative burden is minimised.

It is the government’s intention that where a customer holds a joint account with a deposit taker, this account will only be considered for this measure if no sole account exists or a sole account does not have sufficient funds. If a deduction is made and the non-debtor believes it meets the grounds for objection (see section 8), they would retain this right as if they were the debtor.

End of the process

After the last payment has been made and the debt is completely settled, HMRC would inform the customer with a closing letter confirming that the debt is cleared and no additional deductions would occur. If the automated schedule results in overpayment (for example, interest stopped accruing and a small surplus was taken), any excess would be refunded promptly. Conversely, if interest accrual resulted in a small balance additionally due, HMRC would address that, either by adjusting the last payment or contacting the customer for the remainder.

Correcting HMRC errors

An automated processing system, such as that considered by the government for this measure, will in very rare circumstances lead to errors. For example, if the debt was paid just as the process started, or the account holder was not actually liable for the debt. In these circumstances, deductions would be paused and would be fully refunded (including any interest, fees or penalty charges the customer may have incurred) as a priority.

Where a customer identifies a factual or procedural error, they will be able to notify HMRC through a streamlined objections process set out in the PDN. The government is also considering whether further redress is needed to protect the integrity of this proposed mechanism (see section 8).

Potential redress will only apply to HMRC errors. If there is a change in debt (i.e. if a customer amends their return which leads to a change in liability), HMRC would reconcile the account and refund any overpayment as part of business-as-usual processes.

Data safeguards

Information flows between HMRC and deposit takers would use secure channels, building on existing systems used for enforcement including for court orders or the DRD process. Personal data would be handled in compliance with data protection law, and the legislation establishing the measure would establish appropriate authority for HMRC to obtain and use relevant data, such as account details, solely for the purposes of operating this power in support of HMRC’s primary function of collecting tax owed.

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?

Question 5

4. Operational considerations for deposit takers

Accepted Answer

The cooperation of deposit takers will be vital to the success of this policy. This section examines how deposit takers would implement this measure and invites suggestions to help ensure the process is efficient and straightforward for all parties.

As outlined in section 3, for the purpose of this measure, ‘deposit takers’ means all major deposit holding institutions where individuals or businesses keep money.

How deductions would be processed by deposit takers

It is the government’s intention that HMRC would transmit instructions to the deposit takers using a secure digital delivery mechanism and would include the relevant customer’s name, account details, expected payment schedule and reference information. Deposit takers would be legally obliged to comply, and legislation will be introduced to give effect to that should the government decide to proceed with this measure. As far as possible, the government wants to integrate the proposed deduction by instalment process with deposit takers’ existing payment systems to minimise administrative burden.

Deposit takers would be expected to:

deduct the specified amount on the specific date in line with HMRC’s instructions for the duration of the instalment plan
notify HMRC of successful or failed deductions to support reconciliation
transfer the relevant sums to HMRC
provide sufficient information for reconciliation

Where a payment fails, deposit takers would be required to report a failure code to HMRC. HMRC may request a retry after a short interval, in line with industry norms.

In order to operationalise this measure, the government expects that deposit takers will need to make system and process changes. HMRC will work with stakeholders to design this measure so that it aligns with existing infrastructure already used for regular payments (such as processes used to support standing orders or similar recurring payment arrangements). The government’s aim is to minimise additional operational complexity and manual intervention. Therefore, HMRC would route instructions through designated contacts within each deposit taker and provide advance notice of volumes. Feedback is invited on how to streamline implementation and minimise disruption.

The government’s intention is that deposit takers will be protected from liability when acting on HMRC’s instructions in good faith, in the same way as they are for DRD purposes (see Paragraph 18 of Schedule 8 to the Finance Act 2015).

The government recognises that even small changes can be material and would therefore welcome views from deposit takers on the most straightforward way to streamline this process and minimise disruption. (including whether an Application Programming Interface (API) could support implementation).

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?

Question 6

5. Scope of the measure

Accepted Answer

This section sets out the government’s current thinking on which customers and debts should be in scope of this proposed measure.

Debts and customers in scope

To ensure this measure is appropriately targeted, the government wants to clearly define what tax debts are in and out of scope.

As with DRD, the government’s intention is that this measure would apply to both individuals (to capture those whose debts cannot be recovered through PAYE) and companies with lower value, established, tax debts across all HMRC tax regimes (that is, Self Assessment Income Tax, PAYE, VAT, Corporation Tax, Stamp Duty, and similar taxes including any penalties or interest that may accrue up to the point the debt is settled).

The government is also considering whether this measure could also apply to certain benefits now managed by HMRC and will work through any specific legal exemptions or interactions.

Certain types of debts would be automatically out of scope:

debt not yet established: this measure would only apply to debts that are final and legally enforceable. Debts under active appeal, enquiry or compliance review would be out of scope
recent debts still in the standard collection cycle: This power would only be used once HMRC’s standard collection processes have been exhausted. Typically, this means the debt would be at least several months old and subject to multiple contact attempts, including reminders and opportunities to engage voluntarily
customer who are already in an arrangement or enforcement process: Like an agreed TTP, enforcement action or charging order
no identifiable UK bank account: This measure is predicated on the ability to instruct UK financial institutions to make deductions. If HMRC cannot identify a valid UK bank or building society account in the customer’s name, the case would be excluded from this process. Overseas accounts are not in scope for this power
if a person is deceased or a business/individual is insolvent: Their debts are handled through their estate, rather than using this process. Similarly, if a customer is in formal insolvency (bankruptcy, individual voluntary arrangement, company liquidation, or administration), normal insolvency rules take precedence, and HMRC would not use this mechanism

The purpose of this measure would be to complement existing debt collection tools, rather than replace them. It would be an operational decision for HMRC to determine the most appropriate tool to use on a case-by-case basis.

Upper debt value limits

The aim of this measure is to target lower value debts of disengaged customers. The government is considering how to define ‘lower value debts’ and is open to views from stakeholders and other interested parties. At this stage and based on analysis of customer debts, the government does not expect the power to apply to customers with a total tax debt greater than £10,000 for companies and £5,000 for individuals (inclusive of any interest and penalties at the point of action). The government considers that the debt value limit for individuals in scope for this measure should be proportionate. For example, most individual debt items are relatively modest — where customers have debts below £5,000, the average debt for individual customers is around £950.

These debt value limits would apply on a total debt per customer basis, rather than per individual debt item. For example, if a customer owes £400 in Self Assessment, £400 in VAT and £100 in PAYE, HMRC would consider the total (£900) when assessing eligibility for this measure. This approach avoids a scenario where multiple smaller debts are treated separately, potentially bringing a customer with a higher overall liability within scope of the power multiple times.

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

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?

Question 7

6. Safeguards: Protecting customers who require extra support

Accepted Answer

The overarching policy objective of this measure is to reduce the number of lower value debts that remain unpaid. At the same time, the government wants to ensure there are robust safeguards in place to protect customers requiring extra support. This section sets out how this measure could identify those customers, what data could be used to support this and the mitigations that could be in place to protect them.

HMRC’s wider approach to identifying and supporting customers is informed by cross-government principles on fair debt management, including those promoted by the Government Debt Management Function.

Through the HMRC Charter, HMRC is committed to high standards of behaviour and values. Staff are trained to recognise indicators during calls and correspondence that may identify customers who need extra help or may need reasonable adjustments such as changing how and when HMRC makes contact, allowing more time to respond, or working with authorised representatives.

Where appropriate, customers can be referred to HMRC’s specialist Extra Support Team, which provides tailored, case‑by‑case assistance to help customers engage with HMRC and navigate their obligations in a way that reflects their circumstances. Customers are also signposted to independent, free debt advice and wider support services.

Identifying customers who need extra support

In order to build appropriate safeguards for this measure, the government intends to follow the existing definition of who HMRC would view as requiring extra support. This definition, in its broadest sense, refers to someone who cannot deal with their tax affairs or engage with HMRC in the standard way due to a severe or chronic mental or physical health condition, learning difficulties, recent bereavement or other personal circumstances.

Financial hardship alone would not necessarily exclude someone from this measure; it is possible for customers to be in temporary financial difficulties yet still be capable of engaging with HMRC. HMRC relies on customer contact to find appropriate ways to support them through hardship.

HMRC’s Debt Management teams already use indicators from customer contact, including where a customer is supported by the Extra Support Team, to help tailor support. These indicators would help inform how this measure could be applied. These existing processes would be used as part of this proposed measure, ensuring customers with known support needs have those needs considered if or when they owe a debt eligible for recovery through the proposed measure.

The government recognises that HMRC may not always know if someone requires extra support, especially if they have not engaged with HMRC at all. To further support customers, the PDN would include a clear prompt instructing recipients that if they are in a particularly difficult personal situation or require extra support, they should contact HMRC immediately. Inviting individuals to come forward is intended to reveal situations that might otherwise remain undiscovered.

Using additional data to identify extra support needs

HMRC is exploring safe and lawful ways to use data from other government departments or deposit takers, to help identify potential extra support needs in cases where the customer has not told us. For example, some government benefits (or certain markers on tax accounts) could indicate that a person might have additional needs. However, using such data must be done carefully to avoid incorrect assumptions. Another idea would be to work with deposit takers who have their own duty to look after customers requiring support, to see if they could potentially alert HMRC when they receive an instruction, however their involvement would be highly limited and governed by law. Exploration of this is in its early stages, and the government would welcome feedback from stakeholders on the feasibility of using additional data to identify extra support needs.

For the avoidance of doubt, any arrangement with deposit takers to share customer information would not make them decision makers. At most, a simple support flag would be shared under an agreed legal framework (with consistent standards across all deposit takers and appropriate transparency for customers), while HMRC retains full responsibility for how to proceed with the case.

It is worth noting that relying on external data to detect extra support needs could help capture cases HMRC would otherwise miss. However, it raises privacy considerations and may not always be accurate. HMRC would only pursue these approaches in compliance with data protection laws and where it is clear the benefits outweigh the risks. One principle would be to err on the side of caution — if data suggests a customer could require extra support, HMRC would likely delay or avoid using the automated process until certain it is appropriate.

Accounting for customers requiring extra support — manual review

At any stage during the process, if HMRC identifies support needs (either through data checks or customers engaging with HMRC) automation would pause and HMRC would manually review the case.

This reviewer (who would be trained in HMRC’s support protocols) would examine the details of the case, including the specific indicator raised, any relevant notes or history on the customer’s record and whether there are any immediate safeguarding concerns that require urgent action.

Based on this holistic review, HMRC would take an appropriate, tailored decision on how to proceed with that debt. In general, there are three possible outcomes:

divert to specialist support who are equipped to handle customers requiring extra support with bespoke solutions (including but not limited to communication in braille, large print or a different language)
adjust the PDN with accommodations and proceed accordingly
conclude the indicator does not prevent the use of this measure and proceed

In all scenarios, the overriding principle would be that customers with additional needs would not be forced through an automated system without due consideration. The manual review would add a human judgement to ensure this measure was used only where appropriate.

If a customer disagrees with HMRC’s assessment, they would be able to object. See section 8 for further information.

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?

Question 8

7. Safeguards: Assessing affordability

Accepted Answer

The fundamental principle of this proposed measure is that customers paying their debts through instalments (rather than lump sum deductions) would help ensure that payments are affordable and manageable. As the intention of this measure is a process to recover high volumes of lower value debts at scale, the government is also exploring how data and design choices could be used to further improve affordability. This section discusses that in more detail.

Assessing affordability through data

When setting up an automated deduction plan, HMRC’s goal is to strike a balance between the payments being large enough to clear the debt in a reasonable time, but not so high as to impose hardship on the customer or to fail due to insufficient funds. Achieving this requires some assessment of the customer’s financial capacity.

Traditionally, in voluntary TTP negotiations, HMRC will ask the customer about their income, expenditure and assets to work out what they can afford to pay. However, as this measure is targeted at persistently non-engaging customers, HMRC would need to assess affordability through other means. The government is considering the following options:

Credit reference agency (CRA) data: HMRC cannot obtain the usual income and expenditure information from customers who are not engaged so is exploring whether data from a CRA could provide an indicator of affordability (for example, affordability banding) to help determine appropriate deduction amounts. Any information obtained from CRAs would be used only as an indicator to inform HMRC’s assessment; the decision on whether the proposed instalments are affordable, and the amount to be deducted, would be made by HMRC
HMRC’s internal data: HMRC often has relevant information already. For individuals, tax returns, PAYE records, or Self Assessment returns can indicate income levels. For businesses, recent turnover figures from VAT returns or accounts provide a similar indication. Such data could inform what may be reasonable for a customer to pay through an instalment plan. For instance, if a sole trader’s last known yearly profit was £30,000, a payment plan of £250 per month (which is £3,000 per year, about 10% of profit) might be reasonable, whereas £1,000 per month might not be

The feasibility of applying these and other data sets to an automated affordability assessment will impact the final design of the measure.

Instalment plan length and flexibility

If it is possible to use either of the above mentioned data sources to determine affordability, the government is further considering whether it is appropriate to build flexibility into an instalment payment plan to ensure deductions remain affordable, proportionate and responsive to individual circumstances.

The government is not currently considering a ‘default’ payment plan length. However, it is important that the plan balances the customer’s ability to pay with timely debt clearance. The government is minded not to apply this measure across longer plan durations to avoid customers remaining in persistent debt. If an instalment plan is still not affordable, based on available evidence, then the customer would not be considered for this measure and HMRC would instead review the case and consider its options for alternative resolution.

In practice, the appropriate plan length may vary depending on the size of the debt and the customer’s ability to pay. For example:

some customers may be able to clear their debt more quickly, in which case a shorter plan could reduce interest accrual and resolve the debt sooner
others may require a longer period to ensure payments remain affordable, particularly if new debts are added during the plan or if their financial situation changes

To determine the instalment plan length and whether it is affordable, the government is considering applying HMRC’s usual affordability principle is uses when setting up TTP plans. That generally means that no more than 50% of a customer’s disposable income can go towards repaying the debt. As with TTP plans, further consideration will be needed for this measure to account for savings. The government does not currently propose leaving a minimum amount in a customer’s account providing the instalment plan meets the affordability checks outlined above.

The government would welcome views on how best to structure plan lengths, and whether the factors above should be considered. In particular, the government are interested in how to balance operational simplicity with the need to tailor plans to individual circumstances and maintain fairness across different types of customers.

Whilst every effort will be made to ensure accuracy, an automated system would not be able to assess affordability perfectly in every case. Section 8 discusses how a customer can object to this measure in circumstances where it creates financial hardship.

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?

Question 9

8. Safeguards: Protecting customer rights

Accepted Answer

HMRC is committed to acting in accordance with the HMRC Charter, which sets out the standards of fairness, professionalism and respect that customers can expect when dealing with the department. While HMRC would strive to apply this power accurately and proportionately, the government recognises that it will be essential (both to protect customers and to maintain confidence in the tax system) that this measure has clear and effective routes exist to challenge decisions or raise concerns.

This includes the ability to object to the application of the power in individual cases, as well as to complain where customers are dissatisfied with the service or conduct of HMRC. This section explains the formal mechanisms available and how they operate in practice. There are 2 distinct routes:

objections: a formal challenge to HMRC’s decision to apply this power to a debtor
complaints: dissatisfaction with HMRC’s service or conduct

Each route is handled differently and serves a different purpose. The following subsections explain how each is proposed to work in practice.

Objections and appeals

As described earlier, when a debtor receives a PDN, the government intention is that they could be given the right to object to the proposed action. The objection process would be structured to ensure accessibility and a swift resolution.

Customers would have the right to object where they believe it was applied incorrectly or unfairly. The grounds for objection would be designed to be narrow but align with the existing DRD framework:

HMRC has made a factual or procedural error
the action would cause financial hardship or the customer requires extra support
the funds in the account belong to a third party (this includes non-debtor joint account owners)

These grounds would ensure that objections focus on substantive issues that affect the validity or fairness of the enforcement action.

To protect customers, the government is considering allowing objections from the date the PDN is issued until the final deduction. This approach recognises that a customer’s circumstances could change at any point across the duration of an instalment plan, and provides a single, clear safeguard that applies throughout the plan. While some objections — such as factual or third‑party funds issues — would typically be raised early, keeping the objection route open ensures HMRC can pause and correct action promptly if new information comes to light at any stage.

Upon receipt of an objection, HMRC would pause the enforcement process (for example, not take any further deductions) and conduct an internal review. The review would be carried out by an independent officer who was not involved in the original decision. To note, whilst the ‘customer’ will ordinarily be the debtor, in circumstances where a deduction is made from a joint account, the non-debtor account holder will also retain the right to object.

The reviewer would consider the facts, the grounds for objection and any supporting evidence and issue a decision explaining whether the enforcement action would either proceed, be varied or cancelled.

Should a customer disagree with HMRC’s ruling on their objection, the intention is that customers would be entitled to appeal. HMRC is considering what the most appropriate independent appeal route should be (for example, aligning with existing DRD arrangements or another tribunal route, like the First-tier Tribunal Tax). This would provide an external check on HMRC’s use of this extended power.

The tribunal or court would then consider whether HMRC’s decision to use the power (and the way it intends to use it, for example, the instalment schedule) was reasonable and in line with the legislation and communicate its decision.

As with other tax appeals, any appeal to the tribunal must be made within a set timeframe, typically 30 days from HMRC’s decision to object. The government is considering a similar timeframe for this measure. As previously mentioned, no deductions would occur while an appeal is in progress. If the tribunal upholds HMRC’s position, HMRC would then resume or initiate the deductions, adjusting for any changes. If the tribunal allows the appeal, HMRC would cancel the process and explore alternative methods or next steps in light of the tribunal’s findings.

HMRC would make every effort to avoid errors (see section 3). However, in the rare circumstances these do occur and HMRC has not already resolved it, the customer would be able to object via a streamlined objections process in which HMRC would seek to resolve the matter and return any payments taken in error more expediently than the usual 30-day objections route.

Complaints and Redress

If a customer is unhappy with any aspect of how their case was handled under this measure they would be entitled to raise a complaint through HMRC’s standard complaints procedure. This is a 2 tier internal process:

first, an initial investigation and response by the department responsible (in this case, likely the debt management team overseeing the process)
if the customer remains dissatisfied, a second stage review by an independent HMRC complaints team. Using the existing HMRC complaints system (rather than a specific one) ensures cases receive the same thorough, impartial treatment as any other complaint

Importantly, a complaint is a channel for issues of service or administration and cannot overturn a tax debt or the decision to use the enforcement power on its own. (For example, you could complain if you think HMRC handled your case poorly or made a procedural error, but not simply because you disagree with paying the debt. Disputes about the validity of the debt or the use of the power must be pursued through the objection/appeal route).

Filing a complaint would not automatically stop the deductions while it was investigated, this is in line with current policy which prevents the complaints process from being used as a way to delay enforcement. However, if a complaint investigation finds that HMRC made a mistake or that relevant information was overlooked, HMRC would act to put things right quickly.

While a complaint itself doesn’t halt enforcement by default, HMRC’s complaints team has the ability to intervene in the enforcement process whenever a well founded complaint reveals that something has gone wrong. This ensures that the policy or process remains fair and that any service failings or errors are corrected without undue detriment to the customer. Customers who are still not satisfied after HMRC’s internal 2 tier complaint resolution can ultimately refer the matter to the Adjudicator or the Parliamentary Ombudsman (via an MP), as per the usual complaints’ escalation process.

Where a complaint is upheld, HMRC would take steps to put things right. This may include:

suspending or cancelling deductions if they were applied inappropriately
reimbursing any charges, interest, or costs incurred as a result of HMRC’s error
issuing an apology or goodwill payment where appropriate, in line with HMRC’s redress policy

HMRC are not specifically seeking views on the complaints process, as this would follow HMRC’s established procedures. However, comments are welcome if stakeholders believe a dedicated complaints route would be more appropriate for this measure. Information about the existing complaints procedure can be found on GOV.UK.

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?

Question 10

9. Summary of consultation questions

Accepted Answer