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352 Herringthorpe Valley Rd

Stag, Rotherham

S60 4LA

e: info@branagans.co.uk

t: 01709 327 215

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BRANAGANS

Accountancy Services Ltd

01709 327 215 | info@branagans.co.uk

Our Blog

August 2026 | Tax debt continues to rise amid fears about HMRC powers

Overdue tax owed to HMRC had reached £44.7bn at the end of March, according to the latest official figures released in July, up from £44bn at the same time last year. This included new debt of £103,592m for the full year to the end of March, which is up on the £96,944m for last year's figures at the same point.

Resolved debt meanwhile has risen to £101,851m for the end of March this year, up from £96,738m cleared during the equivalent period for the previous year. In total, 884,319 customers were in Time to Pay arrangements at the end of March this year, down from 913,209 in the previous year, according to analysis of the figures by BDO. For 2024 to 2025, HMRC said its tax gap - the amount of money that should be paid to HMRC in tax and the amount that is actually paid - was at 6.4%.

So, it is little surprise that HMRC is consulting on changing the rules about when tax is paid, and on whether it should have new powers to take money directly from a taxpayer's bank account to pay their tax debt back.

IS THIS LIKELY TO HAPPEN?

HMRC is consulting on getting these new powers, so it could happen. But whether it happens is another story. One of the most vocal opponents to this extension of HMRC's powers is the Low Incomes Tax Reform Group (LITRG).

It's concerned that allowing HMRC to recover lower-value debts directly from taxpayers' bank accounts could lead to taking money in error and creating hardship as a result, if the safeguards aren't sufficiently tight to eliminate such mistakes.

These lower-value debts could be collected in greater volumes, and while the LITRG says it recognises "the importance of collecting tax that's due", it's concerned that "some vulnerable taxpayers could be adversely affected if adequate protections are not built into the new process", said Victoria Todd, Head of LITRG.

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 SAFEGUARDS ARE IN PLACE TO PREVENT FINANCIAL HARDSHIP?

This would be an extension of the existing Direct Recovery of Debts powers, which are currently used only where debts exceed £1,000 and even then, only in certain circumstances. These current powers have caveats which mean HMRC must leave at least £5,000 across the taxpayers' accounts once any money has been taken.

Under the proposed extension of these powers, the smaller tax debts of up to £5,000 for individuals or £10,000 for companies could be taken directly from their bank accounts on a monthly basis rather than as a single lump sum, and there is currently no specified minimum that must be left in the taxpayers' accounts listed in the consultation. So, anyone already living on a tight budget could be left in real hardship and struggling to meet their essential living costs such as rent and food.

Ms Todd said: "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 CAN HELP YOU

If you think you may be affected by the proposed changes, or have any other concerns about your tax position and the current tax regime, then please contact us on 01709 327 215 or email info@branagans.co.uk and we will do everything we can to assist you.