Overdue tax owed to HMRC stood at £44.7bn at the end of March, according to the latest official figures published in July. That's up from £44bn a year earlier. New debt for the year to March came to £103,592m, compared with £96,944m the year before.Overdue tax owed to HMRC stood at £44.7bn at the end of March, according to the latest official figures published in July. That's up from £44bn a year earlier. New debt for the year to March came to £103,592m, compared with £96,944m the year before.
There was some better news on the other side of the ledger. Resolved debt rose to £101,851m, up from £96,738m cleared in the previous year. BDO's analysis of the figures also shows that 884,319 customers were in Time to Pay arrangements at the end of March, down from 913,209 a year earlier. Meanwhile, HMRC put its tax gap for 2024 to 2025 (the difference between the tax that should be paid and the tax that actually is) at 6.4%.
A consultation on new powers
Against that backdrop, it's little surprise that HMRC is consulting on changing the rules around when tax is paid, and on whether it should be able to take money directly from a taxpayer's bank account to settle a tax debt..
Will it actually happen?
It's possible, but a consultation is only the first step, and there is real opposition. One of the most vocal critics is the Low Incomes Tax Reform Group (LITRG), which worries that recovering lower-value debts straight from bank accounts could result in money being taken in error, causing hardship if safeguards aren't tight enough.
Because these smaller debts could be collected in far greater volumes, the risk grows. Victoria Todd, Head of LITRG, said the group recognises "the importance of collecting tax that's due", but is concerned that "some vulnerable taxpayers could be adversely affected if adequate protections are not built into the new process."
She added: "We understand why HMRC is looking for more effective ways to collect tax debts. However, the proposals raise some important questions about how taxpayers will be protected.
"It is important that, before any action is taken to recover a debt directly, HMRC are satisfied that the debt has been correctly identified and is genuinely due."
What protections would there be?
The proposals would extend the existing Direct Recovery of Debts powers. Those are currently used only for debts above £1,000, and only in certain circumstances. Under the current rules, HMRC must leave at least £5,000 across the taxpayer's accounts after any money is taken.
The extension would be different in a few important ways:
Smaller debts: debts of up to £5,000 for individuals and £10,000 for companies could be recovered.
Monthly collection: money could be taken in monthly instalments rather than as one lump sum.
No stated minimum balance: the consultation doesn't currently set out an amount that must be left in the account.
That last point matters. Anyone already living on a tight budget could be left struggling to cover essentials such as rent and food.
Ms Todd highlighted another challenge: "One of the key questions is how HMRC will assess what is affordable where a taxpayer has not engaged, or cannot engage with them. Without up-to-date information about an individual's circumstances, there is a risk that deductions could be set at an unaffordable level.
"HMRC will need to be confident that they can correctly identify potentially vulnerable taxpayers and distinguish them from those who are simply choosing not to engage.
"We welcome HMRC's recognition that strong safeguards and clear routes for taxpayers to challenge decisions will be essential."
We're here to help
If you think the proposed changes could affect you, or you have any wider concerns about your tax position, please get in touch. We'll do everything we can to help.
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