HMRC can now take money directly from your bank account if you owe over £1,000 in tax. Chris Worden explains what this means for directors and how to protect your business.
- HMRC can recover tax debts directly from bank accounts.
- Applies to debts over £1,000 (business or personal).
- Safeguards exist, but risks are high for directors.
- Time to pay arrangements are possible—don’t ignore HMRC.
- Seek advice early to avoid enforcement action.
What is HMRC Direct Recovery of Debt?
Direct Recovery of Debt (DRD) allows HMRC to take money from your bank account without a court order if you owe more than £1,000 in unpaid tax. This power, first introduced in 2015, was paused during COVID but is now back in force.
Who is Affected?
DRD applies to both businesses and individuals with unpaid tax, including VAT, corporation tax, self-assessment, and more. Self-employed people, landlords, and those with investment or property income are all at risk.
How Does the Process Work?
- HMRC must visit you to confirm the debt and discuss repayment.
- You may be offered a time to pay arrangement.
- There is a 30-day appeal window if you disagree.
- HMRC must leave at least £5,000 in your account for expenses.
- Vulnerable taxpayers are excluded from DRD.
Why is HMRC Using These Powers?
HMRC is chasing over £40 billion in unpaid tax, with increased funding and staff to enforce collections. Chris Worden notes a significant rise in aggressive enforcement, including doorstep visits and winding up petitions.
Risks for Directors
If HMRC takes money directly from your business account, it can destroy your cash flow—potentially leaving you unable to pay staff or suppliers. Personal accounts are also at risk.
What Should Directors Do?
- Don’t ignore HMRC letters: Respond promptly to avoid escalation.
- Forecast your cash flow: Know what you can realistically pay.
- Separate tax funds: Keep VAT and corporation tax money aside.
- Seek advice early: Contact professionals before enforcement begins.
Time to Pay Arrangements
HMRC may agree to payment plans—even over several years—if you have a good compliance history and a realistic proposal. Chris Worden shares examples where long-term deals were accepted, but warns these are rare.
When Informal Options Fail
If you can’t reach an agreement, insolvency options like liquidation, administration, or a CVA may be necessary. Director First can help you understand your options and avoid the worst outcomes.
Key Takeaways
- HMRC’s direct recovery powers are active and being used.
- Directors must act quickly to avoid enforcement.
- Time to pay arrangements are possible—be realistic.
- Seek professional advice early to protect your business.
FAQs
- What is HMRC Direct Recovery of Debt?
- It allows HMRC to take money directly from your bank account if you owe over £1,000 in unpaid tax.
- Who can be targeted by HMRC’s DRD powers?
- Both businesses and individuals with unpaid tax, including self-employed people and landlords.
- Are there any safeguards for taxpayers?
- Yes, HMRC must leave at least £5,000 in your account and exclude vulnerable taxpayers.
- What should I do if I receive a letter from HMRC?
- Don’t ignore it. Respond promptly and seek advice to discuss payment options.
- Can I negotiate a time to pay arrangement with HMRC?
- Yes, if you have a good compliance history and a realistic payment plan.
- What if I can’t agree a payment plan?
- Insolvency options like liquidation or administration may be necessary—seek professional advice.
