HMRC Direct Recovery of Debts: What Has Changed?

Direct Recovery of Debts HMRC is a tax-debt enforcement power that allows money owed to HMRC to be recovered directly from certain bank, building society and Cash ISA accounts.

The power returned in a controlled test phase in September 2025 following its suspension during the COVID-19 pandemic. From April 2026, its use began rolling out to more eligible cases, with activity increasing in phases during 2026–27.

DRD is not intended to be the first response to a missed tax payment. It is aimed at individuals and businesses with established debts who have the means to pay but repeatedly fail to resolve what they owe.

For businesses, the important point is that DRD can affect working capital held in bank accounts. However, HMRC must follow safeguards before money can ultimately be transferred.

What Is Direct Recovery of Debts HMRC?

Direct Recovery of Debts, usually shortened to DRD, gives HMRC the power to recover certain established tax and tax credit debts directly from accounts held with banks and building societies.

The legal framework was introduced through the Finance (No. 2) Act 2015.

DRD can potentially apply to:

• Individuals
• Sole traders
• Limited companies
• Limited liability partnerships
• Other businesses with qualifying debts

It can cover money held in current accounts, savings accounts and Cash ISAs.

HMRC generally considers DRD only where the relevant tax and tax credit debt is more than £1,000, the normal appeal timetable has passed and previous attempts to resolve the debt have been unsuccessful.

The power was used only 19 times during the two years before it was suspended during the pandemic. Its return therefore represents a significant change for businesses that have allowed established tax debts to remain unresolved.

What Changed With Direct Recovery of Debts in 2026?

The main change is that DRD has moved beyond the initial restart stage. HMRC restarted the power in September 2025 using a controlled test-and-learn approach. From April 2026 onwards, it began rolling DRD out to more customers.

This means businesses should no longer treat DRD as a dormant or experimental enforcement power.

HMRC is increasing its use in phases during 2026–27, while continuing to apply safeguards intended to distinguish businesses that genuinely cannot pay from those believed to have sufficient funds but are choosing not to settle their debts.

For small businesses, this makes responding to tax-debt correspondence particularly important. Ignoring a confirmed liability can allow the matter to move from ordinary debt collection into formal enforcement.

How Does HMRC Direct Recovery of Debts Work?

DRD follows several stages rather than allowing HMRC to remove money immediately after a tax bill becomes overdue.

Stage	What Can Happen
Debt becomes established	The liability is due and the normal appeal timetable has passed
Contact attempts	HMRC provides opportunities to discuss or resolve the debt
Additional engagement	Individuals normally receive a face-to-face visit
Account information	Banks or building societies may be required to provide relevant account information
Hold notice	Funds up to the required amount may be placed on hold
Objection period	The debtor has 30 calendar days to object
Decision	A valid objection is considered before transfer
Deduction	Money can be transferred if the process continues

The hold is particularly important.

A hold notice does not mean the money has already been paid to HMRC. The relevant amount remains with the bank while the debtor has an opportunity to object.

If no successful objection or payment arrangement prevents further action, a deduction can subsequently be made.

Does HMRC Have to Visit You Before Using DRD?

This depends on who owes the debt.

Individuals And Sole Traders

An individual being considered for DRD should receive a face-to-face visit before the debt progresses through the process.

The visit provides another opportunity to:

• Confirm the identity of the debtor
• Confirm the liability
• Explain why payment is being pursued
• Discuss ways to settle the debt
• Consider a Time to Pay arrangement
• Identify circumstances requiring additional support

Limited Companies And LLPs

The position is different for companies and limited liability partnerships. A company or LLP will not usually receive a face-to-face visit before DRD action.

That does not mean money can be removed without warning. Businesses should still receive multiple opportunities to discuss the debt and agree how it will be resolved before HMRC contacts the relevant financial institution to progress DRD.

Directors should therefore not rely on the absence of a physical visit as evidence that enforcement cannot proceed.

How Much Money Must HMRC Leave In Your Accounts?

HMRC must leave an available balance of at least £5,000 across all relevant accounts after placing a hold.

The £5,000 protection does not apply separately to every account. For example, if a debtor has several accounts, HMRC looks at the combined position when determining whether sufficient money exists to proceed.

The protection is designed to reduce the risk that DRD removes money required for matters such as:

• Employee wages
• Mortgage payments
• Essential household expenditure
• Essential business expenses

However, businesses should not assume that every pound earmarked internally for suppliers, future VAT, payroll or investment is automatically protected simply because management intends to use it for that purpose.

Accurate cash-flow records can become particularly important if hardship or the effect on business operations needs to be demonstrated.

Can HMRC Freeze Your Bank Account?

DRD can result in money being placed on hold, but this is more specific than HMRC simply freezing every account indefinitely.

HMRC can require a bank or building society to place a hold on funds up to the relevant amount while leaving the required protected balance available.

During that period, the held money cannot normally be used by the account holder.

The debtor should receive a copy of the hold notice and then has 30 calendar days to submit an objection.

If there is no objection, the debt has not been paid and no suitable payment plan has been agreed, the financial institution may later be instructed to transfer the held money.

What Happens To Joint Bank Accounts?

Joint accounts can fall within the DRD process, but the other account holder’s interests must be considered. When reviewing a joint account, the starting assumption is that each account holder owns an equal share.

For example, where two people jointly hold an account, half of the balance would normally be treated as belonging to each person.

Other joint account holders may be informed that a hold has been placed on part of the account, although details of the underlying tax debt should not simply be disclosed to them.

A third party who has a beneficial interest in affected funds may also have grounds to challenge the hold.

How Can You Object To Direct Recovery Of Debts?

A debtor has 30 calendar days from the date of the hold notice to submit an objection.

An objection may be possible where:

• The debt has already been paid in full or partly
• No relevant debt was due when the hold notice was issued
• The debtor did not hold the account concerned
• The hold would cause exceptional hardship
• A third party has a beneficial interest in the account

Supporting evidence should accompany the objection wherever possible.

Useful evidence could include:

• Recent bank statements
• Cash-flow forecasts
• Payroll records
• Essential supplier commitments
• Rent or mortgage costs
• Evidence that the debt has been paid
• Documents showing ownership of third-party funds
• Evidence supporting exceptional hardship

An objection cannot simply be made informally by telephone. It must follow the formal written process and reach HMRC within the required deadline.

HMRC should normally make a decision within 30 working days of receiving the objection.

Can You Appeal If HMRC Rejects Your Objection?

Yes.

Where an objection is rejected, the debtor may have the right to appeal the decision to a County Court. For England and Wales, an appeal generally needs to be made within 30 calendar days of receiving the decision.

Anyone considering a court appeal should obtain professional tax or legal advice where appropriate because court procedures and deadlines must be followed correctly.

The existence of an appeal route does not make it sensible to wait until this stage. Resolving incorrect debts or genuine payment difficulties earlier is normally far less disruptive.

What Happens If You Are Vulnerable Or Need Extra Support?

DRD includes safeguards for people whose circumstances make it particularly difficult to deal with their tax affairs.

Relevant circumstances can include:

• A disability or long-term health condition
• A temporary physical or mental health condition
• Bereavement or serious personal difficulties
• Redundancy
• Caring responsibilities
• Domestic abuse
• Difficulties with literacy or numeracy

The list is not necessarily exhaustive.

If somebody is identified as needing additional support while DRD activity is underway, that activity should be stopped while appropriate support is considered.

Depending on the circumstances, enforcement may be delayed or another approach may be used.

However, being referred for additional support does not automatically make a tax debt disappear. If the customer does not engage with the support offered, or circumstances change, ordinary debt recovery can resume and may eventually include DRD.

Can A Time To Pay Arrangement Stop DRD?

A Time to Pay arrangement can provide a route for dealing with tax debts that cannot reasonably be cleared immediately. The arrangement normally spreads the liability across an agreed payment period based on the taxpayer’s financial circumstances.

Businesses should contact HMRC before enforcement reaches an advanced stage rather than waiting for a hold notice.

Before requesting an arrangement, prepare information covering:

• Current account balances
• Business income
• Essential expenditure
• Existing borrowing
• Payroll commitments
• Expected cash flow
• Amount available each month

Agreeing an arrangement also creates an obligation to maintain the scheduled payments. A failed payment arrangement can leave the underlying tax debt unresolved.

Longer-term changes to tax payment timing may also affect how some people manage future liabilities. The planned HMRC 2029 tax bill reforms are intended to move some Self Assessment payments closer to when the relevant income is earned.

What Other HMRC Enforcement Action Can Businesses Face?

DRD is only one tax-debt enforcement option.

Depending on the type of debt, business structure, location and circumstances, unpaid tax can potentially lead to other recovery measures, including:

• Debt collection activity
• Court proceedings
• Taking control of goods
• Insolvency action
• Other statutory recovery procedures

Debt enforcement should also be distinguished from compliance investigations.

For example, employers can separately face HMRC payroll compliance checks where questions arise about PAYE, National Insurance, wage records or other employment obligations.

Maintaining accurate records and responding promptly to correspondence reduces the risk that an administrative problem develops into a larger enforcement issue.

What Does DRD Mean For Limited Company Directors?

A company debt normally belongs to the limited company rather than automatically becoming the director’s personal debt. DRD against a company would therefore generally focus on qualifying accounts belonging to that company.

Directors should nevertheless take unresolved tax debt seriously. Repeated inability to meet tax liabilities may indicate wider cash-flow or solvency problems.

Directors of financially distressed companies should consider the interests of creditors and obtain appropriate professional advice where insolvency becomes a realistic possibility.

DRD should not be viewed in isolation from the company’s overall financial position.

How Can You Check Whether A DRD Letter Is Genuine?

Tax-debt enforcement creates an obvious opportunity for scammers to impersonate HMRC.

Be cautious about unexpected communications that:

• Demand an immediate bank transfer
• Threaten arrest
• Ask for passwords
• Request card or bank details through an unexpected message
• Contain unfamiliar payment links
• Pressure you to respond without checking the correspondence

If something appears suspicious, access your tax account independently rather than following an unexpected link.

Similar verification principles apply when checking whether an HMRC letter is genuine, particularly where correspondence involves payments, refunds or requests for financial information.

What Should Businesses Do Before DRD Reaches The Hold Stage?

The most effective response is usually early action.

Business owners should:

1. Check The Liability: Confirm the tax type, period, amount and whether payments already made have been correctly allocated.
2. Do Not Ignore Correspondence: Repeated failure to engage is an important feature of cases considered for DRD.
3. Challenge Errors Promptly: Use the appropriate review or appeal route before the underlying debt becomes established.
4. Explain Genuine Payment Difficulties: Provide realistic financial information rather than simply saying the business cannot pay.
5. Consider Time To Pay: A sustainable payment arrangement can be more manageable than formal enforcement.
6. Keep Cash-Flow Evidence: Maintain up-to-date bank records, forecasts, payroll figures and essential expenditure details.
7. Get Advice Early: Professional tax, accounting or insolvency advice may be appropriate where the liability is disputed or the business is experiencing serious financial distress.

Final Thoughts

Direct Recovery of Debts HMRC is now an active enforcement power again, with wider rollout having started from April 2026.

For businesses, the most significant safeguards are the requirement for an established debt, the threshold of more than £1,000, repeated opportunities to engage, the £5,000 protected balance across accounts, and the 30-calendar-day objection period after a hold notice.

Individuals normally receive a face-to-face visit before DRD consideration, while companies and LLPs usually do not. That distinction is particularly important for business owners.

DRD is designed for situations where a taxpayer is considered able to pay but does not resolve the debt.

Responding early, correcting disputed liabilities and discussing genuine payment difficulties before enforcement escalates remain the strongest ways to reduce the risk of money being recovered directly from an account.

FAQs About Direct Recovery Of Debts HMRC

What Is The Minimum Debt For HMRC Direct Recovery Of Debts?

DRD is considered for relevant tax and tax credit debts of more than £1,000, subject to the other required safeguards.

Does HMRC Leave £5,000 In Every Bank Account?

No. The £5,000 protection applies to the available balance across all relevant accounts, rather than £5,000 being protected separately in each account.

Can HMRC Use DRD Against A Limited Company?

Yes. Companies can potentially be subject to DRD where the conditions are met. However, companies and LLPs will not usually receive the face-to-face visit provided to individuals.

Can HMRC Take Money From A Joint Account?

Joint accounts can be considered. HMRC generally starts by assuming that each joint account holder owns an equal proportion of the money.

How Long Do You Have To Object To A Hold Notice?

You normally have 30 calendar days from the date of the hold notice to submit the formal objection.

Can HMRC Take Money From A Cash ISA?

Yes. Cash ISAs can fall within the accounts covered by the Direct Recovery of Debts process.

What Happens If You Ignore HMRC Debt Letters?

Continued failure to engage can allow debt recovery to escalate. Depending on the circumstances, this could eventually include DRD or another enforcement method.