Budget 2026 - HMRC's New Powers

 

 

Stronger action against unpaid tax

HMRC will receive additional funding and stronger powers to recover overdue tax from people who can afford to pay but repeatedly fail to respond.

The government also intends to make it easier for taxpayers to settle smaller liabilities through more regular payments and changes to self-assessment.

For compliant taxpayers, this is not necessarily a new tax increase. Instead, the stated objective is to improve collection of taxes already due and reduce the gap between the amounts owed and the amounts received by the Exchequer.

The effectiveness of these measures will depend on how successfully HMRC implements them and how much additional revenue they ultimately generate. 

The main new HMRC power announced in the UK Budget on 28 October 2026 is the ability to recover certain smaller unpaid tax debts directly from bank accounts, subject to safeguards. The Budget also includes more compliance officers and changes to how businesses pay and report tax.

Importantly, these measures do not all take effect immediately.

The main new powers and changes

Measure	What it means	When
Direct recovery of smaller tax debts	HMRC could collect qualifying unpaid tax in instalments directly from bank accounts of people and companies who can afford to pay but repeatedly fail to do so.	July 2029
Wider compliance workforce	HMRC will recruit another 670 compliance officers, on top of previous recruitment commitments.	By 2029–30
Updated information and inspection powers	HMRC will modernise the rules for requesting information and inspecting records, including records stored electronically.	Following Royal Assent to the relevant Finance Bill
Stronger debt collection	The government will invest an additional £70 million over five years in HMRC's debt-collection partnerships.	Over five years
Direct debit requirements	Businesses will need direct debit arrangements for VAT and PAYE liabilities, although they can use other payment methods before the specified cut-off date.	From April 2029
More regular self-assessment payments	Taxpayers already making payments on account will pay more regularly throughout the year, bringing payments closer to when income is earned.	From April 2029

What does direct recovery from bank accounts mean?

This is the measure most likely to attract attention.

HMRC already has powers to recover certain tax debts. The new measure is intended to extend direct recovery to lower-value debts, where a taxpayer has the means to pay but repeatedly fails to do so.

The government says it will develop a Code of Practice setting out safeguards and the operational framework before introducing the measure through future legislation.

It is therefore important not to interpret this as HMRC being given unrestricted permission to take money from anyone's bank account simply because a tax payment is late. The announced policy is targeted at persistent non-payment by people and companies able to pay.

What does this mean for businesses?

Companies should pay particular attention to three areas:

• Cash flow: Direct recovery and more systematic debt collection could make unresolved tax arrears harder to leave outstanding.

• Payment processes: The planned VAT and PAYE direct debit requirements mean businesses should review their payment arrangements ahead of April 2029.

• Record keeping and compliance: Updated information powers, additional compliance officers and electronic invoicing requirements will increase the importance of accurate, accessible tax records.

The wider message is that HMRC is moving towards more systematic collection, better use of data and earlier identification of non-compliance.

Will HMRC have these powers immediately?

No. The direct recovery measure is planned for July 2029, and the government says safeguards will be developed before legislation is introduced. Other changes have their own implementation dates.

For taxpayers with genuine difficulties paying, it remains sensible to contact HMRC promptly to discuss payment arrangements rather than ignore a tax demand.

Bottom line: The Budget's direction is clear: HMRC is being equipped to identify unpaid tax more effectively and recover qualifying debts more efficiently. For compliant taxpayers, the practical priority is keeping records accurate, meeting deadlines and resolving discrepancies early.

 

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