HMRC and direct recovery of debts

The previously consulted policy to expand direct recovery of debts to include personal debts up to £5,000 and corporate debts of up to £10,000 is to be pursued.

Responding to feedback, the government has announced a consultation and design process, incorporating multiple rounds of feedback and a phased trial rollout before full implementation in 2029.

Key features are that tax credit debts will no longer be in scope, individual overdrafts will be excluded from consideration with additional safeguards for joint account holders and the notice period will be 28 days (rather than the 14 initially proposed).

Initially the policy will only apply to current accounts, and HMRC will also introduce a ‘Refund First’ safeguard, triggering a refund of disputed amounts where a taxpayer objects to a deduction to reduce the risk of financial hardship.

Acceleration of ITSA payments

HMRC has announced plans to accelerate the payment of ITSA liabilities for all customers within the Payments on Account regime from April 2029. Precise details are to be consulted upon, including timing of payments during the year, but the main points are that the default method will be direct debit, based on prior year's liability, with deduction through PAYE on a purely voluntary basis.

HMRC has also promised the availability, in 2028, of web and app functionality for ITSA taxpayers to estimate their liability, make voluntary payments towards it and track how their payments are covering their forecast tax liability.

The government has indicated it will set out in detail:

• the frequency and timing of in-year payments
• the safeguards and flexibilities needed for taxpayers facing financial difficulty
• approach to compliance, including penalties and interest
• communications and support for customers
• detail on how the transition to the new arrangements will work over the next year, and that it will continue to work with stakeholders in this area.

Payment of VAT and PAYE liabilities through direct debit

HMRC has revised the proposals for payment by direct debit from the earlier consultations, so that businesses can continue to pay their liabilities via their preferred method of transfer etc. However, it will also require businesses to set up a direct debit mandate so that any liability created by a VAT or RTI return which has not been settled by the due date can be collected automatically.

The proposals would take effect from April 2029, prior to which the government has committed to consulting on exemptions for certain businesses who cannot use the direct debit process or for whom it might not be appropriate, and also to address concerns around HMRC’s IT systems and amounts paid being reallocated or misallocated, agents’  worries regarding the transparency of clients’ accounts and their access to act on clients’ behalf in some circumstances and the potential for difficulties regarding the interaction of direct debit payments and the notification of errors.