Direct recovery of debts: HMRC’s renewed enforcement power

The Direct Recovery of Debts (DRD) mechanism, outlined in Section 51 and Schedule 8 of the Finance (No.2) Act 2015, allows HM Revenue and Customs (HMRC) to recover outstanding tax liabilities and overpaid tax credits directly from a taxpayer’s bank, building society, or cash ISA accounts.

The policy is designed for cases where an individual or business has the means to pay but has chosen not to, targeting deliberate non-compliance rather than financial hardship. It rests on the principle of administrative proportionality, ensuring that enforcement measures correspond to the taxpayer’s capacity and conduct, a core concept in both UK administrative law.

Although legislated following public consultation in 2014-2015, DRD was put on hold during the pandemic years. Organisations such as the Chartered Institute of Taxation, the Association of Tax Technicians and the Low Incomes Tax Reform Group were consulted. Paul Aplin, of the ICAEW’s Tax Faculty wrote in the Tax Journal that “in terms of reacting to concerns, it has proved one of the most constructive consultations I can recall”. 

HMRC published details of its approach in determining whether someone may be at a “particular disadvantage” in dealing with their taxes, and, as such, should not be considered for DRD but “given alternative support to help them pay the money they owe” in February 2016. The four indicators for identifying vulnerable customers were i) a disability or long term health condition, ii) a temporary illness, physical or mental condition, iii) personal issues or lower levels of literacy, numeracy and/or education.

The 2025 Spring Statement confirmed DRD’s return, with HMRC describing the current rollout as a “test and learn” phase. DRD applies to UK wide taxes such as income tax, VAT, and tax credit overpayments.

Scope and application

HMRC has set out three cumulative conditions for applying DRD:

• The taxpayer owes more than £1,000 in outstanding tax or tax credit liabilities;

• The taxpayer has failed to respond to repeated attempts by HMRC to engage or agree repayment terms; and

• The taxpayer has sufficient funds to pay but has declined to do so.

Only when all three conditions are satisfied may DRD be considered. The measure is framed as a last resort, used only after conventional collection routes, reminders, enforcement notices, and repayment offers, have failed.

Procedure and right to challenge

Before any recovery can occur, HMRC must arrange an in-person visit to the taxpayer’s home or business. During that visit, HMRC agents are expected to:

• Verify the accuracy and legal enforceability of the debt;

• Offer structured repayment alternatives through the Time to Pay scheme; and

• Assess whether the taxpayer might be considered vulnerable, either financially or due to health, personal, or social circumstances.

If HMRC proceeds, it can direct the taxpayer’s financial institution to freeze funds up to the value of the debt. The taxpayer then has 30 days to object, provide evidence, or reach a settlement before any funds are transferred.

Should disagreement persist, taxpayers retain the right to seek judicial review or appeal through the courts under the civil enforcement jurisdiction. Only after these avenues have been exhausted may HMRC finalise the recovery.

This process reflects long-standing administrative law safeguards, particularly natural justice and the right to a fair hearing, ensuring that enforcement action remains reviewable and proportionate.

Safeguards and protections

A dedicated HMRC team has been established to handle cases involving vulnerable individuals, who are generally exempt from DRD. Work is ongoing to clarify how vulnerability will be defined and assessed within the legal context, and what support mechanisms will be offered in such cases.

In all cases, HMRC must leave a minimum of £5,000 untouched across the taxpayer’s accounts. This provision ensures that essential living or business expenses remain accessible, a safeguard designed to prevent hardship and to uphold the proportionality standard recognised by administrative law.

These protections mirror the broader principles of fairness embedded in the Charter of Taxpayer Rights, and they are likely to form a central focus of any judicial scrutiny that arises once DRD is operational.

Policy background and fiscal rationale

As of early 2025, HMRC reported an estimated £44 billion in unpaid tax and tax credit debts across the UK. The reinstatement of DRD forms part of a wider compliance strategy aimed at narrowing this “tax gap”, improving recovery rates, and reinforcing perceptions of fairness among compliant taxpayers.

For individuals and businesses, the reintroduction of DRD means that passive non-compliance is no longer without consequence. Once the mechanism becomes fully operational, HMRC will have the power to act unilaterally to recover funds, subject to statutory safeguards and procedural rights.

For taxpayers, the reintroduction of DRD alters the practical landscape in which arrears are managed. Once fully operational, outstanding liabilities will no longer remain dormant simply because a taxpayer has not responded to HMRC correspondence, and prolonged silence will carry a materially greater risk of enforced recovery. The evidential position of taxpayers, particularly regarding financial hardship, vulnerability, or the viability of alternative repayment arrangements, will assume heightened significance, as these factors may determine whether HMRC is permitted to invoke DRD at all. 

In effect, the mechanism places greater weight on the underlying circumstances of non-payment, making the taxpayer’s financial and personal profile a central component of any potential challenge to DRD action.

Ultimately, the regime reflects a policy shift toward a firmer, data-driven model of debt recovery, one that blends technological efficiency with an evolving recognition of fairness and vulnerability within public administration.

Conclusion

The reintroduction of Direct Recovery of Debts marks a renewed emphasis on compliance and fiscal responsibility, but also raises complex questions about administrative discretion, fairness, and proportionality. While the principle of targeting only those who can pay but will not is defensible, its success will depend on HMRC’s ability to exercise judgment with sensitivity and consistency.