Corporate report

Tackling lower value tax debts factsheet

Updated 28 October 2026

What is this is about?

Most people and businesses pay the tax they owe in full and on time. However, a significant amount of tax becomes debt each year, and not all of it is repaid.

HM Revenue and Customs (HMRC) already works closely with customers to help them settle what they owe in a way that is affordable and fair. But a small number of people and businesses repeatedly do not respond to HMRC, even when they can afford to pay.

The government recently consulted on a new approach for recovering lower value tax debts from customers who have repeatedly failed to engage with HMRC despite having the means to pay. This approach would allow debts to be recovered through affordable, regular deductions from bank accounts, but only after HMRC’s standard collection activity has been exhausted.

The summary of responses summarises the responses received and outlines that the government intends to proceed with developing the policy, with strengthened safeguards and several changes reflecting stakeholder feedback.

The challenge

• around £100 billion of tax each year becomes debt
• most customers resolve their debts quickly when they engage with HMRC
• however, a minority who can afford to pay repeatedly refuse to do so, despite repeated attempts to contact them
• larger value debts are tackled successfully through existing interventions with cases resolved through payment in full or an agreed payment plan
• each year, over 750,000 lower value debts (worth over £2 billion) remain uncollected after multiple collection attempts
• when people and businesses do not engage at all, they cannot receive help to manage their debts — this is unfair to those who pay or enter into affordable arrangements, and risks undermining confidence in the tax system

What did the consultation find?

HMRC received 65 written responses, comprising 34 from individuals and 31 from organisations. HMRC also held webinars, roundtables and bilateral meetings with stakeholders.

Respondents broadly supported action to recover established tax debts from customers who persistently fail to engage with HMRC. They also emphasised the importance of affordability, protections for customers who need extra support, human oversight, clear objection rights and effective redress where errors occur.

What has the government decided?

The government will continue developing a new power to recover established lower value tax debts through regular deductions from bank accounts.

The policy will:

• apply to established tax debts of up to £5,000 for individuals and £10,000 for companies
• be considered only after standard collection activity has been exhausted, after around 10 contact attempts over 9 to 12 months
• not apply where a customer engages with HMRC to manage their debt, including where this process has already begun
• be introduced in phases, starting with companies before extending to individuals
• use tailored affordability assessments to determine whether deductions are appropriate and, if so, the amount and duration of repayments

Protecting customers

Safeguards are central to the policy. These include:

• assessing each customer’s affordability before deductions begin
• removing customers who need extra support from the process for manual review by a trained HMRC officer
• stopping the process where a customer contacts HMRC to manage their debt at any point
• giving customers advance notice and a clear opportunity to contact HMRC before deductions begin
• maintaining access to complaints, appeal and redress arrangements
• where a taxpayer claims a payment has been taken by HMRC in error, operating a ‘refund first’ policy whilst investigating their objection to reduce the risk of financial hardship

Next steps

HMRC will continue working with deposit takers, tax and debt advisers, representative bodies and other stakeholders on the detailed design of the policy.

This will include co-designing a Code of Practice covering how the policy will operate its safeguards and customer protections. The government intends to publish a first draft of the Code of Practice and draft legislation for technical consultation in Summer 2027.

A test and learn phase is planned before wider implementation, followed by a phased rollout beginning with companies and then individuals.