HMRC bank account raid powers spark concern over burden of proof

HMRC’s upcoming new powers, which allow it to recover tax debts directly from bank accounts, raises questions about how the taxman calculates debt.

The new powers, unveiled by Chancellor John Healey in the Budget, effective from July 2029, will allow HMRC to automatically deduct debts from holders who fail to engage with the taxman despite being able to pay.

The powers extend to tax debts up to £5,000 for current and savings accounts, and up to £10,000 for companies. Under the current direct recovery of debts rules, HMRC can take money directly from accounts only if the debt is over £1,000, provided at least £5,000 remains in the accounts.

This is Labour’s latest move to close Britain’s tax gap. The difference between tax owed and collected stands at £59.2bn in the 2024/25 tax year. The government estimated that the new powers will help raise £50m within the first year, £255m in 2030/31 and £320m in 2031/32.

James Kipping, head of private client at MHA, said that despite HMRC proposing protections for vulnerable taxpayers, there should be “genuine concern” over how it concludes the debt amount is correct and final, and how it may “distinguish refusal to engage from inability to engage” from taxpayers.

Kipping also highlighted concerns about what data HMRC uses to determine income and affordability, and how quickly a taxpayer can halt the process and get the money back if HMRC gets it wrong.

“The significant development is the proposed creation of something approaching an HMRC-imposed payment plan, with the department determining affordability and then causing recurring payments to be extracted from the taxpayer’s account,” Kipping added.

Compliant taxpayers unlikely to be affected

Ministers have previously expressed concerns that the high threshold has led to the wide gap, as taxpayers choose to deliberately ignore HMRC demands knowing the taxman is unlikely to chase them. Pursuing debts can also be lengthy and expensive.

“Most compliant taxpayers are unlikely to be affected, but the success of the measure will depend on robust safeguards and ensuring it is used proportionately where debts are undisputed, and other recovery options have been exhausted,” Rachel Nutt, tax partner at MHA, said.

“Given we often end up in debates with HMRC that they believe a notice has been sent by them, and yet neither us (as agent) nor the client will have received a copy, it is a cause for concern,” Nutt added.

A HMRC spokesperson said: “The support we provide means the vast majority pay the tax they owe without the need for further action. These powers will ensure fairness for all taxpayers and be subject to robust safeguards, including checks to ensure instalments are affordable.

“They will only be considered after repeated attempts to contact customers who have the means to pay, but refuse to engage with us. They can contact us at any time to discuss other ways to pay,” they added.

HMRC also clamping down on LLP tax

This comes as the tax authority is becoming more aggressive in its approach to limited liability partnerships (LLPs) and their members’ tax status, a structure used by the vast majority of law firms and professional services.

The tax authority is actively writing to firms registered as LLPs as the firms race to reassess their members’ tax status after a landmark legal ruling.

The decision, delivered by the Supreme Court in July, is the first major ruling on how these conditions work in practice, in a case against hedge fund Bluecrest Capital Management, founded by the UK’s wealthiest financier, in which the taxman successfully argued that the firm’s portfolio managers were functionally employees.