The Government is consulting on an extension to HMRC’s existing debt recovery powers that would allow lower-value tax debts to be recovered through affordable monthly deductions from taxpayers’ bank and building society accounts. HMRC already has powers to recover certain tax debts directly from bank accounts in limited circumstances. The consultation proposes extending those powers to make it easier to recover lower-value debts through regular instalments.
Although no final thresholds have been decided, the consultation indicates that the power is not expected to apply to debts exceeding £10,000 for companies and may be limited to debts of around £5,000 for individuals. The proposals are still under consultation and are not yet law, but they have attracted significant attention because of their potential impact on business cash flow.
Why is the Government considering this change?
The proposals are intended to help HMRC recover lower-value tax debts from individuals and businesses that have persistently failed to engage with repeated attempts to resolve their liabilities. If introduced, a number of safeguards would apply. The Government is proposing that taxpayers would receive a formal Pre-Deduction Notice giving them at least 14 days to pay the debt, object to the proposed action or agree a Time to Pay arrangement before any deductions could begin.
Why businesses fall behind
For most businesses, unpaid tax rarely results from an unwillingness to pay. More often it is the result of poor cash flow, unexpected trading conditions or a lack of forward planning. Corporation Tax, VAT and PAYE liabilities can build up surprisingly quickly if there is no clear plan for meeting them.
Planning ahead is the best defence
The good news is that there are practical steps businesses can take to reduce the risk of falling into tax arrears. Regular management accounts, cash flow forecasts and tax budgeting can identify potential problems months before payment deadlines arrive. Where difficulties are expected, approaching HMRC early to discuss a Time to Pay arrangement is usually far preferable to waiting until debts have accumulated.
A reminder to review your finances
This development also highlights the value of reviewing your business finances on a regular basis rather than relying solely on annual accounts. Understanding future tax liabilities, maintaining adequate cash reserves and monitoring profitability throughout the year can significantly reduce financial pressure and help avoid unexpected tax bills.
There is still time to prepare
The consultation remains open until late August, giving businesses and professional advisers the opportunity to comment on the proposals before any legislation is introduced. Whatever the outcome, the consultation serves as a timely reminder that effective financial planning is one of the best protections against future tax enforcement action. Businesses that actively monitor their financial position are far less likely to be caught out by unexpected tax liabilities or payment difficulties.
How we can help
If you are concerned about meeting future tax payments or would like greater confidence that your business has sufficient cash to meet its liabilities, we can help. We can prepare cash flow forecasts, estimate future tax bills, review your working capital and discuss practical ways to improve your financial resilience before problems arise.
Early planning is almost always easier, and less costly, than dealing with tax arrears after they have developed.
