Consultation on tackling lower value tax debts

Direct Recovery of Debts (DRD) from bank accounts was originally introduced in 2015, paused during the COVID-19 pandemic and then restarted in September 2025.

• It applies to taxpayers’ total tax debts exceeding £1,000 across all tax regimes. There is a safeguard of leaving at least £5,000 in the taxpayer's account.
• These rules allow for the deduction of a one-time lump sum and involve manual, case-by-case processes. According to HMRC, this means they are not the most cost-effective approach for recovering high volumes of smaller debts. 

Under the proposed new measure, initially announced at Spring Statement 2025, HMRC's powers would be extended to allow them to deduct affordable monthly instalments from the taxpayer’s UK bank or building society account, known as the 'deposit taker'. 

• The taxpayer would be notified in advance and given a final opportunity to pay or contact HMRC. 
• This is a new power for HMRC rather than an extension of DRD.

Proposed measure

• HMRC will follow its usual approach to collecting a debt: contacting the taxpayer to secure payment, offering support where appropriate and escalating to stronger recovery activity if the taxpayer does not engage or refuses to pay.
• Once HMRC’s standard collection processes have been exhausted, and the debt remains unresolved, the debt would be considered for direct recovery.
• Before any deductions are made, HMRC would send the taxpayer a formal Pre-Deduction Notice (PDN) informing them of the intention to begin deductions. This notice could include:
  • A detailed breakdown of the debt being recovered, including any interest and penalties due.
  • The proposed instalment payment plan, the monthly amount and the date the deductions will begin.
• The PDN would also include clear guidance on how the taxpayer can respond to it, including the process for objections.
  • Grounds for objection would be similar to those under DRD.
  • There would be a process for appealing HMRC's decisions about taxpayer objections.
• If the taxpayer does not respond to the PDN and the notice period has expired, HMRC could send deduction instructions to the deposit taker, obliging them to begin making the specified deductions for a specific period.
  • Where a taxpayer has multiple accounts, the government is exploring the use of external data from credit reference agencies to decide which account to deduct payments from.
  • Joint account access would be considered only when the taxpayer has no account solely in their name.
• The deposit taker would then execute that instalment payment plan.
  • This would be similar to setting up a standing order, with deductions made on a fixed date each month.
  • No default payment plan length is being proposed. The appropriate plan length may vary depending on the size of the debt and the taxpayer’s ability to pay. Longer durations are unlikely to avoid taxpayers remaining in persistent debt.
  • The government is considering applying the affordability principle HMRC uses when setting up Time To Pay (TTP) plans, which provides that no more than 50% of a taxpayer’s disposable income can go towards repaying the debt.
• Once instalment payments begin, penalties associated with that debt would stop accruing.

HMRC does not expect debts in scope to exceed £10,000 for companies and £5,000 for individuals, including interest and penalties.

• The limits would apply to the taxpayer's total tax debt, not each debt item.

It is proposed that there will be a period between the issuance of the PDN and the first deduction (the ‘notice period’).

• A 14-day notice period is being considered, with the ability to object at any point until the final payment.

It is being considered whether HMRC could assess affordability using their own internal data and that of credit reference agencies, as existing processes under TTP require taxpayer engagement, which by definition would be missing where the proposed measure is being used.

• The intention is that the process will be automated, routine and consistent, with safeguards built in to protect taxpayers, including extra support measures for those identified as having additional needs.
• It should also be capable of being paused or changed as new information about a taxpayer becomes available.

Responses to the consultation can be emailed to This email address is being protected from spambots. You need JavaScript enabled to view it.. The consultation ends at 11.59 pm on 28 August 2026. 

Useful guides on this topic

Time to Pay agreement 
Businesses and self-employed taxpayers with outstanding tax liabilities may be eligible for support with their tax affairs through HMRC’s Time To Pay service.

Tax debts and insolvency
This guide summarises the treatment of tax debts to HMRC in insolvency cases.

External link

Consultation: 'Tackling lower value tax debts'

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 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 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 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: 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 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?