HMRC will be handed sweeping new powers to take money directly from the bank accounts of people who fail to pay their taxes under plans expected to be announced at the Budget.
The taxman will be able to automatically deduct payments from current and savings accounts without obtaining a court order as ministers attempt to recover £4billion in unpaid debts.
Chancellor John Healey is expected to unveil the crackdown targeting millions of individuals and businesses who owe relatively small sums but repeatedly ignore demands for payment.
Under existing rules, HMRC can only seize money directly from accounts if the taxpayer owes more than £1,000 and is left with at least £5,000 after the debt is recovered.
But the threshold could now be slashed to just a few pounds, with officials also able to recover outstanding fines and interest.
HMRC estimates that around 4.8million individuals and businesses owe less than £10,000 each, with their combined debts totalling £4billion.
The average unpaid bill among individual taxpayers is just £950.
The measures, reported by The Times, form part of government efforts to tackle Britain’s £60billion tax gap.
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Chancellor John Healey is expected to unveil the crackdown targeting millions of individuals and businesses who owe relatively small sums but repeatedly ignore demands for payment
HMRC is also considering using credit reference agencies to assess taxpayers’ finances and determine how much they can afford to repay each month.
Previous proposals suggested deductions could be capped at 50 per cent of disposable income.
However, the plans have sparked fears that vulnerable people could have money taken from their accounts because of administrative errors, illness or missed correspondence.
Taxpayers would be responsible for challenging deductions they believed were unjustified.
Dan Neidle, founder of Tax Policy Associates, warned automated systems could struggle to distinguish deliberate tax avoidance from genuine difficulties.
But a senior government source insisted the system would include ‘rigorous’ protections for vulnerable taxpayers.
The Treasury declined to comment on the proposals ahead of the Budget.
LABOUR’S NEW TAX POWERS SPARK FURY AS HMRC COULD TAKE MONEY DIRECTLY FROM PEOPLE’S BANK ACCOUNTS — WITHOUT THE USUAL COURT BATTLE!
Political commentary and news analysis – approximately 1,200 words
A fresh political controversy is brewing in Britain after the Labour Government announced proposals that could allow HM Revenue and Customs (HMRC) to recover unpaid tax directly from people’s bank accounts through regular deductions.
The proposals have sparked concern among taxpayers, opposition politicians and financial experts, with questions being raised about how much power the government should have over people’s personal finances.
For many Britons, the idea that money could be taken directly from a bank account without the usual court process sounds deeply worrying. At a time when households are already struggling with mortgages, rent, energy bills and rising living costs, the prospect of additional deductions has created fears about financial security.
But what exactly is Labour proposing, who could be affected, and what protections would ordinary taxpayers have?
The details reveal a significant potential change to the way Britain collects unpaid tax debts.
What Are Labour’s New HMRC Powers?
The controversy centres on a proposal to extend HMRC’s existing Direct Recovery of Debts powers.
Under the current system, HMRC can instruct banks and building societies to recover certain unpaid tax debts directly from a person’s bank accounts, without first obtaining a court order.
However, this power is subject to strict conditions.
HMRC generally considers it only where:
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The individual has an established tax debt exceeding £1,000.
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The person has repeatedly ignored attempts by HMRC to make contact.
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The debt is no longer subject to the normal appeal process.
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The individual has sufficient money available to pay.
HMRC must also leave at least £5,000 across the individual’s accounts.
The government restarted using these powers in September 2025 after suspending them during the COVID-19 pandemic.
The New Proposal Could Go Even Further
The biggest development came on 23 June 2026, when the government launched a consultation on extending direct recovery powers to lower-value tax debts.
The proposed system could allow HMRC to deduct affordable monthly instalments directly from bank or building society accounts.
Unlike the existing system, which generally involves recovering a debt through a one-off payment, the proposed extension would introduce a more automated approach.
The government says this would help recover money from people who repeatedly ignore tax demands despite having the ability to pay.
According to the Treasury, more than 750,000 lower-value debts, collectively worth over £2 billion, are returned to HMRC each year after unsuccessful collection attempts.
The government believes a more efficient recovery system could help close this gap.
However, the proposals remain controversial because they could significantly reduce the need for traditional court-based recovery procedures in qualifying cases.
How Much Money Could Be Taken?
This is one of the questions attracting the most attention.
The consultation considers a system covering lower-value debts, with potential monthly deductions based on what HMRC considers affordable.
The proposals discussed include debts of up to £5,000 for individuals and £10,000 for businesses.
The government has not established a final payment structure, and the precise safeguards and eligibility rules remain subject to the consultation process.
A parliamentary answer on 30 June 2026 estimated that fewer than 250,000 individuals and companies could fall within the scope of the proposed system annually once fully operational.
Importantly, this is an estimate of potential cases, not confirmation that all those people would automatically have money removed from their accounts.
Why Are Taxpayers Worried?
The biggest concern is the possibility of losing access to money needed for everyday living expenses.
Imagine someone who has fallen behind on a tax payment because of illness, unemployment or unexpected household costs.
If HMRC begins deducting money directly from their account, even relatively small payments could create additional financial difficulties.
There are also concerns about mistakes.
Tax bills can be disputed, records can be incorrect and people sometimes fail to respond to official correspondence because of personal circumstances.
Critics argue that an automated recovery system must be extremely careful not to treat genuine financial hardship as deliberate refusal to pay.
The government insists that the proposed powers would include protections for vulnerable customers and opportunities to establish affordable payment arrangements.
Nevertheless, the effectiveness of those protections will be crucial.
Could HMRC Really Act Without Going to Court?
Yes, HMRC already has limited direct recovery powers that do not require prior court approval.
This is not an entirely new concept.
The existing Direct Recovery of Debts legislation was introduced in 2015 and allows qualifying tax debts to be recovered directly from bank accounts.
The important distinction is that Labour’s 2026 proposal seeks to extend the approach to lower-value debts through potentially automated instalment deductions.
The government argues that requiring traditional court procedures for every smaller debt would be expensive and inefficient.
However, opponents argue that removing the usual court process increases the importance of independent safeguards and meaningful opportunities to challenge decisions.
The central issue is whether HMRC should have greater administrative control over recovering money from people’s personal finances.
The £5,000 Protection: Is It Enough?
Under the existing Direct Recovery of Debts arrangements, HMRC must leave at least £5,000 available across an individual’s accounts.
This protection is intended to prevent people from being left without money for essential household expenses.
However, not everyone agrees that this amount provides sufficient protection.
For a family facing mortgage payments, childcare expenses, energy bills and other financial commitments, £5,000 may not necessarily represent a comfortable financial cushion.
The proposed lower-value debt system raises further questions about whether similar protections will apply and how affordability will be assessed.
The government will need to explain precisely how it intends to protect people whose financial circumstances change unexpectedly.
Conservatives and Reform UK Could Seize the Opportunity
The proposals create a significant political opportunity for opposition parties.
Kemi Badenoch and the Conservatives can question whether Labour is giving HMRC excessive powers over personal finances.
Reform UK, meanwhile, can present the proposal as another example of government intervention at a time when households already feel under financial pressure.
Their argument is likely to focus on ordinary working people who make genuine efforts to pay their taxes but may occasionally experience financial difficulties.
Labour will counter that people who deliberately refuse to pay their tax bills should not be allowed to escape their responsibilities while millions of others meet their obligations.
This is an important distinction.
The government says the powers are intended to target persistent non-engagement, not people who are genuinely unable to pay.
But convincing the public that the system will operate fairly could prove difficult.
What Rights Would Taxpayers Have?
Under the existing Direct Recovery of Debts system, taxpayers have several protections.
These include:
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Advance contact and opportunities to settle outstanding debts.
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A face-to-face visit from HMRC before an individual is considered for direct recovery.
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A 30-day period to object after funds have been placed on hold.
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The right to appeal certain rejected objections to a county court.
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Protection requiring at least £5,000 to remain available across qualifying accounts.
The proposed extension is also intended to include advance notification and opportunities to contact HMRC before deductions begin.
However, taxpayers should not assume that every detail of the proposed system has already become law.
What Happens Next?
The government must consider responses to its consultation before deciding whether and how to introduce the proposed extension.
Financial institutions, tax professionals, businesses and members of the public have all been invited to comment on the plans.
The final design will need to address several important questions:
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How will HMRC determine whether monthly deductions are affordable?
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What happens when someone disputes the amount owed?
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How will vulnerable people be protected?
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What independent oversight will exist?
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How quickly can deductions be stopped if an error occurs?
These are not minor technical details. They could determine whether the system becomes a useful debt-recovery measure or a source of serious financial hardship.
Conclusion: A Powerful New Tool That Demands Serious Safeguards
Labour’s plans to expand HMRC’s direct debt-recovery powers have opened a major debate about the balance between collecting unpaid taxes and protecting individual financial rights.
The government argues that people who can afford to pay their tax debts should not be allowed to ignore repeated demands indefinitely.
However, taxpayers have legitimate reasons to question how a system allowing direct deductions from bank accounts will operate in practice.
The existing powers already allow HMRC to recover qualifying debts without first obtaining a court order. The proposed extension could make that process more widespread by introducing automated instalment deductions for lower-value debts.
For ordinary Britons, the most important issue is protection.
Nobody should be left unable to pay their rent, mortgage or essential bills because of an administrative mistake or an unrealistic assessment of their ability to pay.
HMRC needs effective tools to collect legitimate debts, but those tools must come with transparency, independent oversight and meaningful appeal rights.
The real question facing Labour is this: how far should the government be allowed to reach into people’s bank accounts in the name of collecting unpaid taxes?
That is a debate British taxpayers deserve to have before any new system becomes fully operational.