HMRC Direct Recovery of Debts: when tax debt can be taken from a bank account

HMRC has restarted using Direct Recovery of Debts, a power that can require banks and building societies to transfer overdue tax directly from accounts where the customer can afford to pay but has chosen not to. The process contains safeguards, including a requirement to leave at least £5,000 available across the affected customer's accounts.

Direct Recovery of Debts restarted and expanded again in 2026

HMRC paused Direct Recovery of Debts during the pandemic. Its June 2026 briefing says the power restarted in a controlled test-and-learn phase in September 2025 and began rolling out to more customers from April 2026.

The power applies to individuals and businesses that owe tax and are considered able to pay but are choosing not to. It is not the ordinary first step for a company that contacts HMRC early and agrees a realistic Time to Pay arrangement because of genuine cash-flow difficulty.

HMRC can require the bank to disclose balances and place a hold on money

HMRC says it can instruct banks and building societies to provide information about money held in current and savings accounts. It can then place a hold on funds up to the amount of tax debt and, after the statutory process, take the held money toward the debt.

For a company, that can turn a tax collection problem into an immediate liquidity event. Payroll or supplier cash can become unavailable. Management should therefore respond to HMRC debt correspondence long before the case reaches direct bank recovery.

At least £5,000 must remain available across the customer's accounts

HMRC's current rights-and-responsibilities guidance says it can only place a hold where enough money remains to leave an available balance of at least £5,000 across all the customer's relevant accounts. The safeguard is based on the total balance rather than £5,000 per account.

The minimum is not a business working-capital assessment. A company needing £150,000 for next week's payroll can still face severe pressure even if £5,000 remains legally protected. That is why waiting for the safeguard is not a treasury strategy.

Joint accounts are treated using an assumed equal share

HMRC says that for joint accounts it generally assumes each account holder owns an equal share of the funds. It can place a hold based on the debtor's assumed share and must notify other joint holders that a hold has been applied, without disclosing the debtor's tax details to them.

Business partnerships and family-run operations should avoid relying on informal mixed accounts. Clear ownership helps HMRC, the bank and the business identify which cash belongs to which legal person if enforcement action occurs.

Contact HMRC immediately if the amount or affordability position is wrong

HMRC provides a formal process and safeguards before money is finally transferred. Review the debt, payments already made, account ownership and any active appeal or Time to Pay arrangement. If HMRC has incorrect information, provide evidence quickly.

Do not move money between accounts to evade an HMRC hold. If the company cannot pay without becoming insolvent, obtain professional tax and insolvency advice. The correct issue may be affordability and restructuring rather than disputing the bank's compliance with a lawful instruction.

Treat overdue tax as a treasury escalation well before DRD becomes possible

Maintain a tax-debt schedule covering VAT, PAYE, Corporation Tax and agreed payment plans. If cash will not cover a due liability, contact HMRC early and document the forecast. Time to Pay is designed for customers who cannot pay in full but can repay over time.

Direct Recovery of Debts is aimed at cases where HMRC believes the debtor has the means but is refusing to pay. A business with genuine difficulty is in a stronger position when it has already engaged with HMRC and can show current financial information rather than ignoring repeated contact.

Companies should distinguish DRD from ordinary HMRC Direct Debits. A routine VAT or PAYE Direct Debit is a payment instruction the taxpayer set up. Direct Recovery of Debts is an enforcement power used after tax debt has escalated. Seeing HMRC and the bank involved in both processes does not make them equivalent, and finance should not confuse a DRD hold with a failed normal tax collection.

If a hold threatens payroll or immediate solvency, create a same-day liquidity map showing protected available cash, unaffected accounts, committed receipts and payments due before the next HMRC action point. Share that with tax and insolvency advisers. The £5,000 statutory safeguard can be far below the amount a trading company needs to continue operating.