HMRC is set to take money directly out of people’s Cash ISA accounts in order to settle debts – as long as they have £5,000 or more in.
The tax office says it is resuming powers which were suspended during the pandemic which allows it to directly access people’s Cash ISA accounts to retrieve money they owe in unpaid tax.
HMRC says it has now restarted the powers in a ‘test and learn’ phase. The policy gives HMRC the power to take money owed ‘directly’ from a current account or from a Cash ISA, if the debt is larger than £1,000.
HMRC said: “The government announced in the Spring Statement 2025 that HMRC would re-start the use of DRD for individuals and businesses who choose not to pay the tax they owe. HMRC paused the use of DRD during the COVID-19 pandemic and has now re-started in a ‘test and learn’ phase.
“This policy allows HMRC to recover money owed by requiring banks and building societies to pay directly from a debtor’s account, and/or funds held in Cash Individual Savings Accounts (ISAs). It can be used where debtors owe £1,000 or more, subject to safeguards. »
There had been suggestions that Chancellor Rachel Reeves was set to change Cash ISA rules in the Budget, including a cap on the limits, but this has not been taken up by the government yet and it has since been confirmed that the current £20,000 a year deposit limit will stay in place for the forseeable future.
The safeguards on this debt recovery policy state that HMRC should not cause those with debts ‘undue hardship’ by taking the money back out of accounts, which includes only taking money from accounts which have more than £5,000.
HMRC says: “This includes… always leaving a minimum of £5,000 in the debtor’s accounts, so that we do not put a hold on money needed to pay wages, mortgages or essential business or household expenses.”
HMRC also stresses that every debtor will receive a face to face visit from the taxman before direct recovery is used. Debtors will also be able to lodge an appeal to HMRC within 30 days and no funds will be transferred until that 30 days has passed.
It continues: “Some people experience genuine financial difficulty paying their tax. This often happens when their life is affected by a major personal event, or their business develops a problem. HMRC routinely takes a sympathetic approach to those who need additional support.
“When people realise they are not going to be able to pay on time, or if they require additional assistance with their taxes, they should get in touch as soon as possible. »
