Decoding DRD Changes: What UK Businesses Need To Know Now
- Adil Akhtar
- 2 hours ago
- 13 min read
Decoding DRD Changes: What UK Businesses Need to Know Now
Have you ever opened a letter from HMRC and felt that familiar knot in your stomach? You're running a busy company, juggling orders, staff, and suppliers, and the last thing you need is worry about unpaid taxes snowballing into something bigger. I've been there with clients over the years – good, honest business owners who hit a rough patch and suddenly find themselves facing tough enforcement actions. That's why the recent restart of Direct Recovery of Debts (DRD) by HMRC has caught so many people's attention. It's a power that's been brought back into use in 2026, and if you're a business owner, it's worth understanding exactly what it means for you.
I remember one client, a small manufacturing firm, who overlooked a few VAT payments during a cashflow dip. They thought they'd sort it later, but ignoring those reminders led to real stress when enforcement loomed. The good news? Most businesses never get anywhere near DRD because they communicate early and sort things out. But knowing the rules now can save you a lot of headaches later.
Let's break this down step by step, in plain English, so you know where you stand.
What Exactly Is Direct Recovery of Debts (DRD)?
DRD is HMRC's way of collecting established tax debts directly from your bank or building society account – including business accounts and even cash ISAs in some cases. It's not a new idea; it was introduced back in 2015 but paused during the COVID pandemic to give everyone breathing space. In the Spring Statement 2025, the government announced it would restart, and HMRC began using it again from September 2025 in a careful "test and learn" phase, starting with a small number of companies.
The key point? DRD is aimed at those who can pay but choose not to. HMRC stresses it's a last resort, only used after repeated attempts to contact you and when other recovery options have failed.
Why Has HMRC Restarted DRD Now?
Tax debt across the UK built up significantly – reaching around £44 billion by March 2025. The government wants to close the "tax gap" (the difference between what's owed and what's paid) while being fair to the vast majority who pay on time. Restarting DRD acts as a deterrent and helps recover money from persistent non-payers, funding public services we all rely on.
From my experience, this isn't about chasing struggling businesses – it's targeting those with the means who ignore reminders. HMRC has invested in more staff and systems to handle debts more effectively.
How Does the DRD Process Work in Practice?
If your business owes tax (like corporation tax, VAT, or PAYE), HMRC will first send letters, calls, and possibly visits to discuss payment. Only if those are ignored and the debt is firmly established (with appeal rights expired) might DRD come into play.
Here's the typical sequence:
● Debt must be over £1,000.
● HMRC checks you have funds available.
● They'll issue a "hold notice" freezing the amount in your account.
● You'll get a face-to-face visit from an HMRC officer to explain the debt, verify identity, and discuss alternatives like a Time to Pay arrangement.
● If unresolved, they can then take the money directly.
Importantly, HMRC always leaves at least £5,000 across your accounts combined. This safeguard ensures you can still cover essentials like wages, rent, or supplier payments – preventing real hardship.
You also have rights:
● 30 days to object once a hold is placed.
● Right to appeal, including on grounds of financial hardship.
● Vulnerable customers get extra support and are often excluded altogether.
Who Is Most Likely to Be Affected?
In the initial phase, HMRC focused on companies rather than individuals. Early reports show it encouraged many to engage and pay up quickly. It's expanding gradually, but only for clear-cut cases where people or businesses are deliberately not paying despite having the funds.
If your business is up to date or communicating with HMRC about difficulties, you're very unlikely to face DRD.
Practical Steps to Protect Your Business
The best defence is staying on top of your taxes. Here's a straightforward checklist I've shared with many clients:
● Respond promptly: Never ignore HMRC letters or calls. Reply even if you disagree – it opens dialogue.
● Check your position regularly: Log into your HMRC online account to view debts or payments due.
● Set up payment plans early: If cashflow is tight, ask for Time to Pay. HMRC is often flexible for genuine cases.
● Keep records organised: Good bookkeeping means no surprises at filing time.
● Separate accounts if possible: For sole traders or partnerships, consider keeping some funds aside for essentials.
● Seek advice soon: If debts are mounting, talk to an accountant or HMRC's debt management team.
And if you do get a DRD-related letter? Contact HMRC immediately – many issues resolve at that stage.
What If You're Struggling Genuinely?
HMRC recognises not everyone who owes tax is avoiding it. They have dedicated teams for vulnerable customers and those in hardship. Options like spreading payments over months (or longer) are common. I've helped clients negotiate affordable plans that got them back on track without escalation.
A Quick Comparison of Safeguards
To make it clearer, here's how DRD protections stack up:
Safeguard | Details |
Minimum balance left | At least £5,000 across all accounts |
Face-to-face visit | Mandatory before funds are taken |
Objection period | 30 days from hold notice |
Vulnerability support | Extra help and often exclusion from DRD |
Last resort only | After repeated contact attempts and failed appeals |
These aren't just rules on paper – they're designed to ensure fairness.
Looking Ahead
DRD is now active, with plans for wider use from 2026. But for most businesses, it's a background measure that reinforces the importance of good tax habits. Staying compliant keeps you focused on growing your company, not worrying about enforcement.
If this has raised questions about your own situation – maybe an old debt or upcoming filing – don't hesitate to review your HMRC account or chat with a professional. Tax rules can feel daunting, but getting ahead of them makes all the difference. You've built your business through hard work; a bit of proactive planning protects that.
For official details, check the GOV.UK guidance on tax debts or contact HMRC directly. And remember, this isn't formal advice tailored to your circumstances – for complex issues, always consult a qualified accountant.
A Bit of Background on DRD
Direct Recovery of Debts isn't entirely new. HMRC first got these powers in 2015, allowing them to recover established tax debts directly from bank or building society accounts (including cash ISAs) without going through the courts every time. In practice, it was used very rarely—only 19 times between 2016 and 2018, collecting just over £360,000—before being paused during the COVID-19 pandemic to ease financial pressures.
Fast forward to the Spring Statement in March 2025, and the government announced its restart as part of broader efforts to tackle the UK's tax debt mountain. By March 2025, total tax debt had reached £42.8 billion (down slightly from previous peaks but still double pre-pandemic levels). HMRC began rolling it out again from around September 2025 in a cautious "test and learn" phase, with plans for wider use from April 2026.
The aim? To target the small minority who can pay their taxes but repeatedly choose not to, while freeing up resources to support those genuinely struggling.
How the DRD Process Actually Works
If your business has an overdue tax debt—say, unpaid Corporation Tax, VAT, or PAYE—HMRC won't jump straight to DRD. It's very much a last-resort tool, only for "established" debts where:
● The amount owed is over £1,000.
● Any appeal rights have expired.
● You've received multiple reminders, calls, or even visits, but haven't engaged.
The steps look like this:
HMRC identifies potential cases where funds are available in your accounts.
They issue a "hold notice" to your bank, freezing the owed amount (but not touching it yet).
Crucially, an HMRC officer must visit you in person—at your business premises or home—to verify your identity, explain the debt, and discuss options like a payment plan.
You then have at least 30 days to object (for example, on grounds of hardship) or appeal.
Only if unresolved will they instruct the bank to transfer the money.
And here's a key reassurance: HMRC always leaves at least £5,000 across all your accounts combined. This buffer is designed to cover essentials like staff wages, rent, or critical supplier payments—no one's aiming to push viable businesses over the edge.
Vulnerable customers (those with health issues, personal crises, or other difficulties) get extra support and are generally excluded from DRD altogether.
Why the Restart Feels Timely—and Controversial
Tax debt built up hugely during and after the pandemic, and while most businesses have worked hard to repay, a portion remains with those who could settle but haven't. The government sees DRD as a strong deterrent: even the threat of it often prompts quick payment.
From my viewpoint, having dealt with HMRC on debt cases, this fits into a wider push—extra funding for thousands more debt management staff, tougher late-payment penalties from April 2025, and higher interest on overdue tax. It's about fairness: the overwhelming majority of us pay on time, so why should a few drag it out?
That said, I understand the unease. Direct access to accounts feels intrusive, which is why those built-in safeguards (the £5,000 minimum, mandatory visits, objection rights) are so important. In the early days of DRD pre-pandemic, it acted more as a nudge than an enforcement hammer—many paid up before any money moved.
Real-Life Examples from My Experience
Let me share a couple of anonymised stories to bring this home.
One client, a mid-sized retailer, missed a few VAT quarters during supply chain chaos. They ignored initial letters (big mistake!), thinking they'd catch up later. When a DRD-related notice arrived, panic set in. We contacted HMRC immediately, negotiated a Time to Pay arrangement spreading the debt over 12 months, and DRD never progressed. Lesson learned: early dialogue works wonders.
Another was a contractor who'd built up PAYE arrears. Funds were sitting in the business account, but they were holding off payment hoping for a big invoice. A face-to-face HMRC visit prompted them to settle partially upfront and agree instalments. No direct recovery needed, and they avoided interest piling up further.
These cases show DRD rarely goes the full distance if you engage.
Your Action Plan: Staying Safe from DRD
Most businesses will never encounter DRD—it's for persistent non-engagers with means to pay. But prevention is straightforward. Here's what I always recommend:
● Monitor your HMRC online account regularly — Log in via GOV.UK to spot issues early.
● Respond to every HMRC contact — Even if it's bad news, replying opens options.
● File and pay on time where possible — Use reminders or accountant support.
● If cashflow dips, act fast — Call HMRC's debt helpline or apply online for Time to Pay if the debt's under certain limits.
● Keep good records — Accurate books mean fewer surprises.
● Consider separate accounts — For limited companies, ring-fence essentials if worries arise.
● Get professional help early — An accountant can negotiate better terms than going solo.
If you do face a hold notice, don't delay—object promptly and seek advice.
Key Safeguards at a Glance
To make it easier, here's a summary of the main protections:
Safeguard | What It Means for You |
Debt threshold | Only for established debts over £1,000 |
Minimum balance protected | At least £5,000 left across all accounts |
Mandatory face-to-face visit | Personal discussion before any recovery |
Objection and appeal rights | 30 days to challenge, including on hardship grounds |
Vulnerability exclusions | Extra support team; often removed from DRD process |
Last resort only | After repeated failed contacts and appeals exhausted |
These ensure the process is proportionate and fair.
Wrapping Up: Peace of Mind for Your Business
As we head into 2026, with DRD set for broader rollout, the message is clear: communicate with HMRC and stay compliant. For the vast majority of hardworking UK businesses, this will remain a distant concern. But if you're carrying any tax debt—or worried about upcoming filings—now's the perfect time to review your position.
I've seen proactive steps turn potential nightmares into manageable plans time and again. Check your HMRC account today, or give your accountant a quick call. For official guidance, head to the GOV.UK page on Direct Recovery of Debts or the full issue briefing.
Remember, this article shares general insights based on current rules—tax situations are unique, so for personalised advice, consult a qualified professional. Here's to keeping your business thriving without tax worries overshadowing it. You've got this.
FAQs
Q1: Can HMRC place a hold on a joint bank account under DRD if only one person owes tax?
A1: In my experience advising couples and business partners, this is a real worry that comes up often. Yes, DRD can affect joint accounts, but HMRC typically only targets the debtor's share – often assuming a 50/50 split unless you prove otherwise. I've helped clients quickly provide evidence of unequal contributions, like bank statements showing who deposited what, to protect the innocent party's funds. The key is responding fast during the hold period to avoid any money being taken incorrectly.
Q2: What happens if a business receives a DRD hold notice right before payroll is due?
A2: Well, it's worth noting that timing can feel disastrous, especially for smaller firms I've worked with. The good news is HMRC must leave at least £5,000 across all accounts, which is meant to cover essentials like wages. In one case, a client in manufacturing got a hold just before payday; we contacted HMRC immediately, explained the hardship, and negotiated a temporary release for payroll while setting up instalments. Always highlight urgent obligations – they do listen in genuine cases.
Q3: Does DRD apply to overseas bank accounts held by UK residents?
A3: From what I've seen with clients who have international ties, no – DRD only covers accounts with UK banks or building societies. Overseas accounts fall outside this power, though HMRC can still pursue debts through other routes if they're aware of them via international reporting. If you're a UK taxpayer with foreign holdings, it's sensible to declare everything properly to avoid broader enquiries.
Q4: Can a sole trader protect personal savings from DRD on business tax debts?
A4: It's a common mix-up for sole traders, where business and personal finances blur. Since there's no legal separation, DRD can reach personal accounts if the debt stems from trading. I've advised many to open a separate business account and build up a buffer – aiming for that £5,000 minimum in a personal one for essentials. Early separation makes proving hardship easier if things escalate.
Q5: What if HMRC makes a mistake and applies DRD to the wrong person or amount?
A5: Mistakes do happen, though rarely, and I've dealt with a few over the years where identities got confused due to similar names. You have strong rights: object within 30 days, provide evidence, and appeal if needed. In one hypothetical like a client with a common surname, quick proof of no debt stopped it dead. Document everything and involve a professional early – it usually resolves without funds moving.
Q6: Is there extra protection for pensioners or those on fixed incomes under DRD?
A6: Absolutely, and this is close to my heart from helping older clients. HMRC's vulnerability teams assess cases carefully; if you're reliant on pensions or benefits, you're often excluded altogether or get tailored support. I've seen pensioner clients flagged automatically for extra help, leading to affordable plans instead of direct action. Mention your circumstances promptly if contacted.
Q7: How does DRD interact with an existing Time to Pay arrangement?
A7: In my experience, if you've already agreed a Time to Pay and are sticking to it, DRD shouldn't come into play – it's for non-engagers. But if payments lapse, it could restart. One client missed a couple due to admin errors; we reinstated the plan quickly and halted any escalation. The lesson? Set up direct debits and monitor closely.
Q8: Can DRD be used for disputed tax debts that are under appeal?
A8: No, and this is a crucial safeguard I've emphasised to many worried business owners. DRD only applies to "established" debts where appeal windows have closed. If you're actively appealing, it pauses enforcement. I've supported clients through appeals that wiped out supposed debts entirely – always appeal if you believe you're right.
Q9: What about cash ISAs – are they fully protected or vulnerable under DRD?
A9: Cash ISAs are in scope, which surprises a lot of savers I talk to. But the same rules apply: only after repeated non-engagement, with the £5,000 buffer and other protections. Consider a client who built emergency savings in an ISA; when a old debt surfaced, we shifted focus to a payment plan before any hold. Diversifying savings types can add peace of mind.
Q10: If a company director has personal guarantees, can DRD hit personal accounts for company debts?
A10: Generally no for pure company debts, as limited liability protects personal assets – but if you've given personal guarantees or there's director loan issues, it could cross over. I've advised directors to keep finances strictly separate. In phoenix situations or misconduct findings, personal liability might arise, so clean records are vital.
Q11: How soon after a hold notice must a face-to-face visit happen?
A11: The visit is mandatory before any recovery, usually arranged promptly after the hold. Clients tell me it's often within weeks, giving a chance to discuss options in person. One retailer I helped used the visit to negotiate on the spot – turned a potential nightmare into a manageable plan.
Q12: Does DRD affect credit scores directly?
A12: Not the DRD process itself, but the underlying unpaid tax debt might if it leads to county court judgments elsewhere. I've seen clients worried about this; settling early avoids marks. Focus on resolving the debt to protect your rating long-term.
Q13: Can family members gift money to cover a debt and avoid DRD?
A13: Gifts can help pay voluntarily, which stops escalation – I've encouraged this for clients with supportive relatives. But if a hold is already in place, new deposits might still be caught. Best to act before it reaches that stage.
Q14: What if a business is seasonal and has low balances most of the year but spikes?
A14: HMRC checks balances at the time, so low periods might naturally protect you via the £5,000 rule. A seasonal client in tourism once benefited from this; we timed communications around peak cashflow for better plans.
Q15: Are there differences for partnerships versus limited companies under DRD?
A15: Partnerships can see personal accounts targeted since partners are jointly liable, unlike limited companies where it's usually business accounts. I've helped partnerships restructure to limited for protection – worth considering if debts recur.
About the Author:
Adil Akhtar, ACMA, CGMA, serves as CEO and Chief Accountant at Pro Tax Accountant, bringing over 18 years of expertise in tackling intricate tax issues. As a respected tax blog writer, Adil has spent more than three years delivering clear, practical advice to UK taxpayers. He also leads Advantax Accountants, combining technical expertise with a passion for simplifying complex financial concepts, establishing himself as a trusted voice in tax education.
Email: adilacma@icloud.com
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