Updated on 3 November 2026

Budget 2026: Safeguards will be key to new HMRC tax debt recovery powers, says LITRG

Press release

CIOT’s Low Incomes Tax Reform Group (LITRG) says new HMRC powers to recover lower-value tax debts direct from bank accounts will need strong safeguards in order to protect vulnerable people and prevent financial hardship. 

A desk littered with various papers and stationary, 4 small white blocks that spell out the word 'DEBT'
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Following consultation in summer 2026, it was confirmed in this week’s Budget1 that from July 2029 HMRC will be given extended powers to use automated processes to recover lower-value tax debts through regular deductions directly from taxpayers’ bank accounts2. The powers will apply to tax debts of up to £5,000 for individuals and up to £10,000 for companies, where the taxpayer has repeatedly failed to engage with HMRC. 

In its consultation response3, LITRG warned that non-engagement may reflect financial hardship, vulnerability or difficulties accessing support, rather than an unwillingness to pay, and that automated affordability assessments may not reflect taxpayers’ actual financial circumstances. It stressed that lower-value debts should not attract a lower standard of protection simply because the sums owed are smaller in HMRC’s terms4.

While the initial proposals put forward in the summer have been amended to include some additional safeguards5, LITRG remains concerned about the impact of this measure on people who face barriers to engagement, how they will be protected, and how HMRC will assess the affordability of the deductions for taxpayers under an automated process.

Sarah Weston, Technical Officer at LITRG, said: 

“We recognise that HMRC are trying to reduce the overall amount of unpaid tax and it is reasonable for HMRC to pursue people for tax that is genuinely due. 

“We are pleased that HMRC has taken on board and addressed some of the concerns we raised during the consultation on this proposal. In particular, allowing a longer notice period before debts are recovered, stronger protections for joint account holders, and a ‘refund first’ approach in cases where there is dispute over the deduction, are all welcome. However, important questions remain about how these safeguards will work in practice. Getting the detail right will be essential.

“Not responding to HMRC does not necessarily mean someone is unwilling to pay. HMRC must explain how they will identify people who need extra support and ensure their cases are removed from the automated process for human review. They must also check that debts are correct before making deductions.

“Money in a bank account could be needed for essential bills. Although additional data and third-party evidence might help HMRC assess taxpayer vulnerability and affordability, they may not tell the whole story. 

“Safeguards must ensure that powers are used appropriately and deductions do not leave people struggling to meet day-to-day living costs.”

HMRC will develop a Code of Practice in consultation with stakeholders, with a first draft and draft legislation expected in summer 2027.

LITRG, along with other external stakeholders, will work with HMRC as the proposals are developed. It will continue to press for a transparent system that recognises taxpayers’ individual circumstances, with robust safeguards to protect people in vulnerable circumstances and those on low incomes from financial hardship.

Notes for editors

  1. See the Budget 2026 ‘red book’, para. 6.149: https://assets.publishing.service.gov.uk/media/6ae20b85460c1346f7be784e/E03668986_HMT_Budget_2026_ELAY__2_.pdf
  2. ‘Proposals to tackle lower value debts’ – the government’s consultation document and summary of responses: https://www.gov.uk/government/consultations/tackling-lower-value-tax-debts
  3. LITRG’s response to the consultation: https://www.litrg.org.uk/submissions/proposals-tackle-lower-value-tax-debts-litrg-response
  4. The consultation document states “where customers have debts below £5,000, the average debt for individual customers is around £950”. 
  5. LITRG has cautiously welcomed the government’s changes to its initial proposals. These include extending the minimum notice period before deductions start from 14 to 28 days, excluding authorised overdrafts for individuals, strengthening protections for joint account holders and introducing a ‘refund first’ safeguard for disputed deductions. 
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