There has long been a public debate about the difference between those unable to meet their tax obligations for lack of funds and those simply unwilling to pay their taxes. Whatever the rights and wrongs of individual cases, taxpayers expect the settlement of tax debts to be a matter of due process, including negotiation with HMRC, but of course subject to a range of potential enforcement mechanisms culminating in the use of the judicial system. Ten years ago, HMRC was granted a workaround that could short cut all of this in certain circumstances.
The history of direct recovery of debt
Few apart from tax professionals will remember the Direct Recovery of Debts (DRD) measure coming into effect on 18 November 2015 under Schedule 8 of the Finance (No.2) Act 2015. That gave HMRC the power to recover unpaid tax directly from a taxpayer’s bank and building society accounts, including Cash ISA accounts.
In April 2019, HMRC announced that DRD had achieved its policy objectives and had contributed towards collecting £178m of tax revenue. It said that the low volume of complaints, objections and appeals, the low number of those upheld and the protection of vulnerable customers from it, confirmed that the correct taxpayers were being identified for DRD enforcement.
Then came Covid, when as one of many measures to ease the financial implications of the pandemic, the DRD scheme was suspended. Now, DRD is back after the government announced in its Spring Statement 2025 that HMRC would re-start the use the mechanism against individuals and businesses who choose not to pay the tax they owe.
How does DRD work in practice?
Internal HMRC assessment for DRD suitability
A tax debtor will only be considered appropriate for DRD action where they would have estimated funds of £5,000 left in their account(s) after any payment against their tax liability has been deducted.
Initial contact
Where HMRC is able to make contact with the debtor and obtain payment of outstanding tax debt, DRD action ceases.
Face-to-face visit by HMRC representative
If no payment is made, the taxpayer receives a visit. During this, the representative completes an assessment of vulnerability. If the customer is deemed to be vulnerable at this stage, DRD action ceases.
Information notice issued (start of formal DRD process)
If suitable and not vulnerable, a request is sent to the taxpayer’s bank seeking confirmation of available funds. If these are less than £5,000 then DRD action ceases.
Hold notice issued
The taxpayer is notified of HMRC’s intention to deduct payment.
Payment deducted from the bank account(s)
If after 30 days, no objection or appeal has been made, the tax payment due will be taken from the account. If an objection is raised, the deduction is made 30 days after the HMRC response or following the Court finding for HMRC in an appeal case.
What are the safeguards the DRD scheme?
The design of the scheme is intended to ensure that taxpayers do not suffer any undue hardship. The measures are:
- Only taking DRD action once a tax debt has been finalised.
- Only after normal collection procedures have failed, especially when they have been ignored.
- Only using DRD to recover overdue tax in excess of £1,000.
- Always leaving a minimum of £5,000 in the taxpayer’s accounts after the DRD deduction.
- Only taking DRD action when the timetable for appeals has passed.
- Ensuring that every taxpayer receives a face-to-face visit from an HMRC representative before any DRD recovery action begins, so that HMRC can personally identify the taxpayer and confirm it is their debt, as well as explaining what they owe and discuss payment options, including a Time-To-Pay arrangement.
- Where a taxpayer meets the DRD criteria but is considered vulnerable or in need of extra support following the face-to-face visit, DRD will not be used and the taxpayer may be offered help through a specialist HMRC team.
What does DRD mean for taxpayers?
Despite the availability of a Court-based appeals option, the existence of this enforcement process means that ignoring a tax liability is now a far more risky tactic than in the past. DRD can be applied not just to individuals, but to businesses as well.
When DRD was reintroduced earlier this year, HMRC highlighted that before its suspension, it had only been used nineteen times over three years and that it was intended only to be implemented when an individual or business could afford to pay what they owed but was choosing not to.
Nevertheless, the public finances are in a far more parlous state than at the schemes inception in 2015 and there is tangible evidence of a harder attitude now at HMRC. This can be seen from a sharp jump in the use of Winding Up Petitions by HMRC in 2025. In this context, the threat of DRD should be taken very seriously.
At Opus, we have extensive experience assisting business owners and directors with concerns and challenges. We will always work with you to find the best solution for the business. If you would like to speak to Opus, one of our Partners would be more than happy to have a non-obligatory, confidential chat with you. We can be contacted at rescue@opusllp.com or call us on 0203 995 6380 and we will arrange for a call with one of our specialists.