HMRC Bank Account Powers: What They Mean for the Self-Employed

Tax Queen

Tax Expert @ Pie

5 min read

What You Need to Know

If you file and pay your Self Assessment on time, this proposal is unlikely to change anything for you. It's aimed at people who owe tax and keep ignoring HMRC's letters and reminders, not at taxpayers who are already talking to HMRC.

The Government is looking at letting HMRC take smaller tax debts straight from bank accounts in affordable instalments. Nothing has been formally announced, so your tax bill and filing obligations are the same as they were.

What you should do is simple. Keep up with your returns, open any post from HMRC promptly and, if you can't pay, contact HMRC before the debt grows. If you're not sure where to start, our guide on getting help with Self Assessment explains the support available.

How HMRC's Current Bank Recovery Powers Work

HMRC already has the power to recover certain unpaid tax directly from a taxpayer's bank account without going to court first. It's meant for people who owe money and haven't responded when HMRC has tried to contact them.

According to the source report, the current rules come with safeguards. The debt must be more than £1,000, and the taxpayer must be left with at least £5,000 across their accounts after the deduction. [Editor Note: Unverified figure - check against HMRC guidance]

In practice, this means people with smaller debts or modest savings currently fall outside these powers. The proposals would change that.

What the Proposed Changes Could Mean for You

The proposals could extend direct recovery to lower-value debts. Rather than taking one large sum, HMRC might collect affordable instalments from your current or savings account.

For self-employed people, tax debts often build up when a balancing payment and a payment on account fall due at the same time. A payment on account is an advance payment towards next year's bill, and it catches a lot of people out. Our guide to Self Assessment payments on account explains how they're worked out.

Who Is Being Targeted

The focus is on people who have repeatedly failed to engage with HMRC despite attempts to contact them. If you're already in touch with HMRC about a bill, or paying under an agreed arrangement, the stated aim isn't to target you.

HMRC is also recruiting more staff, using private-sector debt collection agencies and using data to tailor its approach to each case. Unpaid tax is more likely to be chased up, whatever the amount.

Safeguards Being Discussed

Tax professionals have called for clear protections for people in financial hardship, people with disputed tax bills and vulnerable taxpayers. A disputed bill is one where you disagree with the amount HMRC says you owe, for example because of a mistake on a return.

The proposed system is expected to include advance warning, chances to contact HMRC and repayment arrangements designed to be affordable. Taxpayers would also need ways to challenge decisions or explain why automatic deductions wouldn't suit their circumstances.

The final details will depend on what the Government decides and any measures it formally announces. Until then, treat this as a sign of where things are heading rather than a new rule.

How to Stay Ahead of Your Tax Bill

The best protection against any recovery action is not letting unpaid tax build up in the first place. For most self-employed people, that comes down to planning and good records.

Set Money Aside as You Earn

If you move a share of every payment you receive into a separate savings account, your bill is much less of a shock when it arrives. Our article on how to budget for your Self Assessment tax bill walks through practical ways to do this.

Talk to HMRC Early

If you know you can't pay in full, contact HMRC before the deadline rather than after it. For the 2025-26 tax year, the balancing payment is due by 31 January 2027. [Editor Note: Unverified date - check against HMRC guidance]

HMRC may agree a payment arrangement that lets you spread the cost over time. Ignoring letters is exactly the behaviour these proposals are designed to tackle.

Keep Records You Can Rely On

Accurate records of your income and allowable expenses (the business costs you can take off your income before tax is worked out) make mistakes easier to spot. If a bill ever looks wrong, good records give you the evidence to query it.

A Note for Online Sellers

The Government is also considering making online marketplaces responsible for collecting certain taxes owed by sellers on their platforms, particularly overseas retailers. The details haven't been confirmed.

If you sell online as a sole trader, you still need to report taxable income on your Self Assessment return. Keep records of your sales and platform fees so your figures match anything a marketplace might report.

Keeping Your Tax Under Control

Whether or not these powers go ahead, the people least affected will be those who know what they owe and when it's due. Keeping your income and expenses up to date through the year is the simplest way to stay in that position.

Pie Tax is self-assessment software that pulls in your income and sorts your allowable expenses as you go. Sole traders, freelancers and landlords can watch their tax bill build up during the year instead of finding out when HMRC asks for it.

If you'd like to see where your 2025-26 return stands before the January rush, Try Pie Tax for free.