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Direct Recovery of Debts (DRD) - the new rules

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29 January 2016

As part of the 2014 Budget, George Osborne announced a controversial proposal to consult on new powers for HMRC to enable direct recovery of debts from the taxpayers’ bank accounts.  The proposals received a resounding negative response from most practitioners, professional bodies and taxpayers. 

HMRC forged ahead with the proposals and they are now enshrined in legislation.  However, a few new safeguards have been put in place to try and alleviate some of the concerns raised during the consultation process.  Disappointingly, most of these safeguards are contained in HMRC guidance rather than primary legislation, so reliance will be placed on HMRC staff following this!

Outline of DRD

HMRC now have the power to recover outstanding debts from taxpayers who have ignored previous tax demands direct from their bank accounts.  This adds to HMRC’s pre-existing powers of being able to directly seize possessions to cover debts owed, but furthers this by negating the need for them to obtain a court order to recover cash.  

This new legislation is expected to affect 11,000 taxpayers a year with an average tax liability of more than £7,000.  HMRC has estimated that around half of those affected have more than £20,000 in their bank accounts.

When could HMRC use these powers?

HMRC can use their DRD powers where all of the following are satisfied:
  • the outstanding tax liability is £1,000 or greater;
  • it is an ‘established debt’ (e.g. from an assessment, determination, enquiry closure notice or contract settlement issued by HMRC) or due under an accelerated payment notice; and
  • HMRC is satisfied that the taxpayer is aware of the debt.

The safeguards

Some of the main safeguards HMRC have committed to when using the DRD legislation include:

  • a guaranteed face-to-face visit with HMRC before DRD is invoked;
  • special consideration given to vulnerable payers (e.g. those with a disability, long-term health condition, physical or mental health condition, personal issues, lower levels of education etc.);
  • a minimum of £5,000 will be left within the bank account(s) of the taxpayer following the DRD.

Only, taxpayers with debts of over £1,000 that have enough money in the bank to pay the debt and are not vulnerable will be considered for DRD.

How is the debt collected?

If all of the above apply, HMRC can contact the appropriate bank(s) to obtain details of the debtor’s accounts. This must be provided within ten days.  HMRC will then instruct the bank or building society to freeze the required funds and will then contact the taxpayer for a final time to advise of the action taken. If the taxpayer wishes to object they must do so within 30 days, otherwise the funds will be transferred after this period.

With effect from 10 February 2016, the banks are able to levy an administration charge on the account holder of up to £55 for complying with the DRD.  This can only be levied once the final payment has been taken by HMRC under the DRD notice. 


Upfront communication with HMRC is key.  If your business is experiencing cashflow difficulties, HMRC may consider a time to pay arrangement.  This should be discussed as soon as practically possible to avoid HMRC from acting under the DRD legislation.