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UK Tax Changes 2026: How HMRC Plans to Recover Unpaid Debts

Author : Hamza Ola | Published On : 06 Nov 2026

The UK tax system is preparing for important changes as HM Revenue and Customs (HMRC) looks to strengthen its approach to collecting unpaid taxes. New government plans could allow HMRC to recover certain tax debts directly from taxpayers' bank accounts through automatic deductions, particularly when individuals or businesses repeatedly fail to respond to payment requests.

The proposals are part of a wider effort to reduce outstanding tax debts and improve the efficiency of tax collection. However, the changes also raise important questions about financial security, taxpayer rights and the protections available to people experiencing financial difficulties.

For UK taxpayers, understanding what is changing, when the new rules could take effect and how to respond to HMRC notices will be increasingly important.

Why Is HMRC Changing Its Debt Recovery Rules?

HMRC collects billions of pounds in taxes every year to support public services. Although most taxpayers pay their tax bills on time, some debts remain unpaid despite repeated reminders and attempts to contact the people or businesses involved.

The government wants to make debt recovery more efficient by giving HMRC additional ways to collect established tax debts.

Under the proposals announced in 2026, HMRC plans to introduce a more automated system for recovering certain lower-value debts directly from bank accounts. The approach is intended for taxpayers who have repeatedly failed to engage with HMRC after normal collection procedures have been exhausted.

This does not mean every person with an outstanding tax bill will automatically lose access to their bank account. The proposed system includes notification procedures, affordability checks and opportunities to challenge recovery action.

Can HMRC Take Money Directly From Your Bank Account?

HMRC already has an existing power known as Direct Recovery of Debts (DRD). It allows the department to recover certain unpaid tax debts directly from bank and building society accounts, subject to specific safeguards.

Under the existing arrangements, HMRC generally considers direct recovery when someone has the financial ability to pay but chooses not to settle an established debt.

The existing system includes several protections:

  • HMRC generally considers debts exceeding £1,000.

  • At least £5,000 must remain available across the customer's accounts.

  • Taxpayers receive opportunities to discuss payment arrangements.

  • Customers can object to recovery action.

  • Appeals may be made to a county court on specified grounds.

The government is also developing a separate system for lower-value debts. This would introduce regular automatic deductions rather than relying only on the existing one-off recovery process.

What Are the New HMRC Bank Deduction Proposals?

The 2026 government response confirms plans to develop an additional debt recovery system for taxpayers who repeatedly fail to engage with HMRC.

The proposed policy would cover established tax debts of:

  • Up to £5,000 for individuals.

  • Up to £10,000 for companies.

The new system is expected to allow HMRC to arrange deductions in instalments directly from eligible bank accounts.

Importantly, this is a planned future measure, not an immediate change applying to every taxpayer in 2026.

The government intends to introduce additional safeguards, including affordability assessments, advance notification and a formal process for challenging proposed deductions.

When Will the New HMRC Rules Take Effect?

The government has outlined a gradual implementation timetable rather than introducing the new system immediately.

The expected schedule includes:

  • Summer 2027: Publication of a draft Code of Practice and draft legislation for consultation.

  • 2028: A limited test-and-learn phase to examine how the system works.

  • 2029: Planned phased implementation beginning with companies.

  • 2030: Planned extension to individuals.

These dates are part of the government's current implementation roadmap and may be subject to further development.

Taxpayers should therefore distinguish between HMRC's existing direct recovery powers and the proposed additional automatic deduction system.

What Protection Will Taxpayers Have?

One of the biggest concerns surrounding direct bank deductions is whether people could lose access to money needed for everyday living expenses.

The government has acknowledged these concerns and plans to include several protections in the new system.

1. Advance notice

Taxpayers will receive a formal pre-deduction notice explaining the proposed recovery action. The government has agreed to extend the proposed notice period to at least 28 days.

2. Affordability assessments

HMRC intends to develop an affordability assessment to help determine whether proposed deductions are manageable for the taxpayer.

3. Right to object

People will have an opportunity to challenge proposed deductions before they begin. Objections may involve factual errors, financial hardship, support needs or money belonging to another person.

4. Protection for joint account holders

The government plans to consider individual accounts first. Joint accounts would only be considered where a suitable sole account is unavailable. Additional protections will apply to people who share an account but do not owe the tax debt.

5. Refund protection

A new proposed Refund First safeguard will allow disputed amounts to be refunded while HMRC reviews an objection, helping reduce the risk of financial hardship caused by incorrect deductions.

What Should You Do If You Owe HMRC Money?

If you have an outstanding tax bill, the most sensible approach is to contact HMRC rather than ignore letters or payment reminders.

Here are some practical steps taxpayers can take:

  • Check your tax account regularly for outstanding balances.

  • Make sure your tax returns and payments are up to date.

  • Contact HMRC if you believe a tax calculation is incorrect.

  • Ask about a Time to Pay arrangement if you cannot afford the full amount immediately.

  • Keep copies of letters, payment confirmations and other relevant documents.

  • Seek independent tax or debt advice if you are unsure about your rights.

A Time to Pay arrangement may allow eligible taxpayers to spread outstanding payments over an agreed period, depending on their circumstances.

Taking action early can help prevent a manageable tax problem from becoming a more serious debt recovery issue.

Could These Changes Affect UK Businesses?

Businesses may also be affected by HMRC's developing debt recovery approach.

Companies with established tax debts of up to £10,000 could fall within the proposed scope of the new system if they repeatedly fail to engage with HMRC.

This makes accurate bookkeeping, regular tax payments and prompt communication particularly important for small businesses.

Business owners should monitor VAT, Corporation Tax, PAYE and other relevant tax obligations. If a business experiences cash-flow difficulties, contacting HMRC early may help it explore available payment options.

Final Thoughts: What UK Taxpayers Need to Know

The planned HMRC tax changes represent an important development in how the UK government intends to recover unpaid tax debts.

Although HMRC already has direct recovery powers, the additional system proposed in 2026 could make it easier to collect certain lower-value debts through automatic instalment deductions.

However, the new system is not being introduced immediately. Its development will continue through consultation, legislation and testing, with implementation currently planned to begin with companies in 2029 and individuals in 2030.

For taxpayers, the key message is simple: do not ignore HMRC correspondence, check your tax obligations and seek a payment arrangement if you are struggling financially.

Understanding the existing rules and the proposed changes can help individuals and businesses protect their financial interests while staying compliant with UK tax requirements.

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